Core viewpoints

In the first three quarters of 2023, the company achieved a cumulative operating income of 8.962 billion yuan, a decrease of 6.74% over the same period last year, and a net profit of 1.166 billion yuan, an increase of 34.53% over the same period last year. The company's revenue scale decreased compared with the same period last year, mainly due to the decline in the business income scale of solid waste projects. The year-on-year increase in the company's performance was mainly due to the improvement in the price gap between purchase and sales in the natural gas business, the profitability of the energy business and the contribution of new incineration power generation projects since the fourth quarter of last year. The profit of the company's waste incineration business increased year on year, with a net profit of 716 million yuan in the first three quarters of 2023, an increase of 23.23% over the same period last year. Recently, through the transfer of equity, the company has increased the scale of waste incineration power generation by 4500 tons per day, including 3300 tons per day for overseas projects. With the continuous growth of the company's waste incineration power generation business capacity and the steady development of superimposed energy, water supply and drainage business, we expect the company's performance scale to continue to expand and profitability to continue to improve.

Event

The company releases the third quarter report of 2023

The company released its report for the third quarter of 2023, with a cumulative operating income of 8.962 billion yuan in the first three quarters of 2023, a decrease of 6.74% over the same period last year, a net profit of 1.166 billion yuan, an increase of 34.53% over the same period last year, a weighted average ROE of 10.24%, an increase of 1.81% over the same period last year, and a basic EPS of 1.43 yuan per share, an increase of 0.37 yuan per share. The company's 2023Q3 achieved an operating income of 3.035 billion yuan in a single quarter, a decrease of 12.66% over the same period last year, and a net profit of 476 million yuan, an increase of 48.56% over the same period last year.

Brief comment

In the first three quarters of 2023, the company achieved a cumulative operating income of 8.962 billion yuan, a decrease of 6.74% over the same period last year, and a net profit of 1.166 billion yuan, an increase of 34.53% over the same period last year. The company's revenue scale decreased compared with the same period last year, mainly due to the decline in the business income scale of solid waste projects. The year-on-year increase in the company's performance was mainly due to the improvement in the price gap between purchase and sales in the natural gas business, the profitability of the energy business and the contribution of new incineration power generation projects launched since the fourth quarter of last year. In terms of business, in the first three quarters of 2023, the company's solid waste disposal, energy business, water supply business and drainage business achieved operating income of 46.08,29.65,7.09 and 446 million yuan respectively, a year-on-year change of-12.13%,-1.32%, + 0.29% and + 0.64%. In the first three quarters of 2023, the net cash flow of the company's operating activities was 1.631 billion yuan, an increase of 1.528 billion yuan over the same period last year, mainly due to the company's receipt of 988 million yuan in the transfer of accounts receivable and actively working with local governments to improve and implement the cost allocation mechanism. The company's capital expenditure is about 1.6 billion yuan in the first three quarters of 2023. With the gradual completion of the company's projects under construction and the reduction of new projects, it is expected that the company's capital expenditure for the whole year will be much lower than in previous years.

The profit contribution of the engineering business has shrunk, and the profit of the operating business has increased year on year. In the first three quarters of 2023, the company's solid waste disposal business achieved a net profit of 830 million yuan, an increase of 10.68% over the same period last year. Specifically, the profit contribution of engineering business in solid waste treatment decreased compared with the same period last year, while the profit of operating business increased compared with the same period last year. Of this total, the net profit of the engineering and equipment business was 68 million yuan, down 62.05% from the same period last year, and the net profit of the municipal solid waste incineration business was 716 million yuan, an increase of 23.23% over the same period last year. In terms of new operating projects, recently, the company has been granted a 40% stake in Xinyuan (China) Environmental Science and Technology Co., Ltd., with a new waste incineration power generation scale of 4500 tons per day, including 3300 tons per day for overseas projects (Bangkok, Thailand). In the first three quarters, the company's incineration power generation business tons of electricity generation and tons of online electricity decreased by 3.46% and 2.16% respectively, mainly due to the company's development of pipeline heating and long-distance mobile heating to improve business profits. In the first three quarters, the company achieved external heating of 781900 tons, an increase of 31.52% over the same period last year, and a total of 9 external heating business agreements have been signed.

The three businesses of energy, water supply and drainage advanced steadily, maintaining the "buy" rating from January to September 2023, the company's energy business achieved a net profit of about 140 million yuan, turning losses into profits, an increase of 220 million yuan over the same period last year. The turnaround of the company's energy business is mainly due to the improvement of the price gap between the purchase and sale of natural gas business compared with the same period last year. In addition, based on garbage disposal, the company actively develops hydrogen production projects from kitchen waste, with a current production capacity of about 2200 tons of hydrogen per year. In terms of water supply business, the company achieved main business income of 709 million yuan, and the water loss rate in the third quarter was controlled at 8.36%, down 1.04% from the same period last year, ranking in the forefront of the industry; in drainage business, the company achieved main business income of 446 million yuan, an increase of 0.64% over the same period last year, mainly due to the fact that the company successively added new sewage treatment plants into operation in the second half of last year. At present, the company is actively promoting the construction of the Northwest sewage treatment Plant (Phase II) and other three expansion projects (with a total scale of 95,000 square meters / day), of which the second phase of Dashi sewage treatment Plant (Phase II) (with a scale of 20,000 square meters / day) has been completed and put into operation. The remaining projects are expected to be put into production from the fourth quarter of 2023 to the first half of 2024. With the continuous growth of the company's waste incineration power generation business capacity and the steady development of superimposed energy, water supply and drainage business, we expect the company's performance scale to continue to expand and profitability to continue to improve. We expect the company to achieve a net profit of 1.464 billion yuan, 1.595 billion yuan and 1.752 billion yuan respectively from 2023 to 2025, with a corresponding EPS of 1.91,2.08,2.29 yuan per share respectively, maintaining a "buy" rating.

Risk analysis.

The project under construction falls short of the expected risk; the company's project construction is affected by epidemic situation, weather and other factors, the project construction schedule is uncertain, and there is the risk that the project under construction is not as fast as expected, then the company's revenue and profit growth will also be less than expected risk.

The risk of policy adjustment of renewable energy subsidies; the issuance of renewable energy subsidies is still uncertain, and if the company's renewable energy subsidies continue to be unrecoverable, it will have a negative impact on the company's cash flow and face the risk of bad debt impairment.

The risk of rising gas prices: the current global geopolitical tension, international energy prices are high, adding gas prices, the company's urban fuel business is facing the risk of being difficult to keep up with the price in time, resulting in a decline in the profitability of the company's gas business.