Zhitong Finance App learned that CITIC Securities released a research report stating that it maintains the “buy” rating of Beijing Capital City Resources (03718). Considering that the company's performance in the first half of the year met expectations, the hazardous waste disposal business growth was slightly lower than expected, and the net profit forecast for 2023-25 was slightly lowered to HK$364/474/602 million (originally HK$368/479/612 million), with a target price of HK$0.7 million. The company's 2023H1 performance was in line with expectations, and profitability was significantly restored. Revenue from sanitation services grew rapidly in the first half of the year, and gross margin increased steadily with the help of technological upgrades and cost reductions; the hazardous waste disposal business benefited from lower raw material prices and improved management efficiency, and gross margin increased.
The main views of CITIC Securities are as follows:
2023H1 results are in line with expectations.
The company achieved revenue of HK$2.54 billion in the first half of the year, up 6.1% year on year; realized net profit of HK$190 million, up 20.5% year on year; converted to EPS of HK$0.05 million. The company's operations in the first half of the year were greatly affected by the devaluation of the RMB. Excluding the influence of the exchange rate, actual revenue increased by 12.5%, and net profit from the parent organization increased by 27.7%. The performance was in line with expectations. The growth was mainly driven by the increase in the performance of the sanitation service business.
The sanitation business continues to grow, and the profitability of the two main businesses has recovered significantly.
The company's 2023H1 revenue increased steadily by 6.1% year on year to HK$2.54 billion, mainly due to a 12.7% year-on-year increase in the sanitation business, which accounts for relatively high revenue, to HK$2.17 billion. In the hazardous waste disposal business, as the impact of the epidemic subsided, the project plant resumed operations, and the treatment volume increased by 21% year-on-year, but due to the drop in sales prices, revenue from this part of the business increased by only 1.46%. The company's gross margin increased by 2.6 pcts to 23.0% year on year in the first half of the year. Among them, the gross margin of the sanitation business increased by 2.1 pcts to 23.8%. The main reason was that the company used a location monitoring system to track work progress and fuel usage in real time to improve operational efficiency, and the purchase prices of gasoline and diesel, which affect the direct cost of the project, fell 9%/11% year on year; the gross margin of hazardous waste disposal business increased by 3.3 pcts to 20.3%, due to the decline in the cost of direct materials such as liquid alkali sodium and the high gross margin of the copper recycling service newly provided by the company. The company's expense ratio increased slightly during the first half of the year. The sales/administrative/financial expense ratio changed +0.16/+0.27/+0.57 pct, respectively, due to an increase in employee wages and welfare expenses, and an increase in market interest rates. The company's net operating cash flow for the first half of the year was HK$288 million, up 5.91% year on year. The balance ratio fell to 51.38% from 53.39% at the end of 2022 to 51.38%, and the financial situation remained good.
The traditional main business is developing steadily, and the urban manager service model has been fully laid out.
According to the company's announcement, as of 2023H1, the company has signed a total of 152 sanitation operation projects. Of these, 2023H1 has won 16 new sanitation operation projects. The annualized contract amount is about HK$281 million, and the traditional main business is progressing steadily. In terms of hazardous waste disposal business, the copper scrap resource utilization project under construction is expected to further increase the gross profit margin of this part of the business. On the other hand, the company adheres to the “integrated two-engine” development strategy, uses the “six forces management system” as the strategic execution vehicle for core competitiveness, and is deeply involved in developing diverse urban service formats in the region, including urban, urban and rural sanitation, greening, public toilet maintenance, water cleaning, and urban property services throughout the region. The bank believes that the continuous deepening of traditional main business and the continuous expansion of the urban manager service model will continue to empower the company's performance growth.
Risk Factors:The company's sanitation project contract fell short of expectations; fuel prices continued to remain high; and hazardous waste prices continued to fall.