Incidents:
The company released its semi-annual report for 2023. In the second quarter, the company achieved revenue of 4.714 billion yuan, +17.76% year on year, and net profit attributable to income of 244 million yuan, +0.79% year on year; in the first half of the year, the company achieved revenue of 9.354 billion yuan and net profit of 748 million yuan, +19.86% and +13.94%, respectively. The lower performance increase than expected was mainly due to low global commodity prices compounded by low hazardous waste disposal prices.
Key points of investment:
Performance fell short of expectations due to low global commodity prices compounded by low hazardous waste disposal prices. In the first half of 2023, the company achieved revenue of 9.354 billion yuan and net profit of 748 million yuan, +19.86% and +13.94%, respectively. This was mainly due to 1) the sluggish state of commodities caused by weak global economic recovery in the first half of the year; 2) the price status of hazardous waste disposal in various regions was hovering. In the hazardous waste sector, the company has full-chain technology and facilities integrating the front and back ends of “collection - storage - harmless treatment - deep processing of resources”. It can concentrate and recover various metal resources such as copper, gold, silver, palladium, tin, nickel, lead, zinc, and antimony. During the reporting period, the company passed technology upgrades and is actively laying out a disposal market for hazardous waste such as waste liquid and waste residue generated by power battery recycling and dismantling units. The company's production capacity plans relating to automotive-grade lithium battery materials that have been approved by the EIA include: 15,000 tons of refined nickel sulfate, 15,000 tons of refined cobalt sulfate, and 790 tons of lithium carbonate.
Furthermore, the “40,000 tons/year NEV waste power battery dismantling project” planned by the company has been completed. 4 new waste power battery disassembly production lines have been added, and 40,000 tons of waste power batteries for new energy vehicles will be dismantled each year.
The clean energy equipment sector is expected to benefit significantly under carbon neutrality, and the signing of new orders will drive growth in the sector's performance. At present, the company and the Three Gorges have signed a strategic cooperation agreement, and there are plans to expand equipment production and land in Hubei, the second largest province for pumped water storage. China Network and South Net have the highest share of pumped storage in the transportation scale (65%/23%), but among future new projects, the Three Gorges Group has a planned capacity of 51 GW, second only to the State Grid (76 GW), surpassing the South Grid (36 GW), and the second largest shareholder of State Grid Xinyuan, the main body of the State Grid pumped storage, is also the Three Gorges Group (30% shareholding ratio). During the reporting period, Zhejiang Fu Holdings and the Three Gorges Group of the Yichang Government signed the “Yichang High-end Hydropower Manufacturing Industrial Park Project Cooperation Framework Agreement”. The three parties will work together to promote the construction of the Yichang High-end Hydropower Manufacturing Industrial Park project and build a production capacity of 10 sets of hydropower equipment per year.
The hazardous waste strategy is clear, and the scale is number one in the same industry. The company has been actively developing the hazardous waste sector over the years, with an overall disposal capacity of 1.75 million tons, ranking first in the same industry. 2019-2020 was the peak period for the company's production capacity investment, with an average compound annual growth rate of 107.6%. Production capacity is sufficient under construction, and the company is also implementing front-end hazardous waste disposal projects one after another, mainly including:
Chenzhou, Hunan (370,000 tons, obtained EIA and land certificates in April 2020), Dalian, Liaoning (300,000 tons, EIA and land certificates obtained in May 2021), and Deyang, Sichuan (300,000 tons, under development, not yet EIA), with a total production capacity of 2.75 million tons currently in operation.
Profit forecast and investment rating: The company's business is developing steadily, and the equipment manufacturing business is expected to benefit from a carbon-neutral strategy, but it is expected that 2023 will still be affected by global commodity prices. We have lowered our profit forecast. We expect the company's net profit from 2023-2025 to be 1,663, 19.07, and 2,204 billion yuan (before the reduction, 2023-2024 was 21.21/2,499 billion, and the profit forecast for 2025 was the first increase). The current stock price corresponds to 23-25 PE of 13, 11, and 10 times, maintaining “buying” ratings.
Risk warning: New project development falls short of expectations, hazardous waste disposal prices are lower than expected, and global commodity prices are under pressure.