Items:

According to the company's quarterly report for 2023, 2023Q3 achieved an operating income of 892 million yuan, a year-on-year change of + 8.32%, and a net profit of 153 million yuan, a year-on-year change of-11.38%. As of 2023Q3, the operating income was 2.196 billion yuan, a year-on-year change of + 2.95%; the company realized a net profit of 347 million yuan, a year-on-year change of-9.27%.

Comments:

Industrial energy conservation and building energy conservation drive revenue growth, and biomass projects are a drag on performance. As of 2023Q3, the company achieved operating income of 2.196 billion yuan, a year-on-year change of + 2.95%, of which the industrial energy-saving / building energy-saving sector achieved operating income of 11.10 million yuan respectively, with year-on-year changes of + 21.48% and 16.31% respectively. The growth of industrial energy-saving business may benefit from the continuous landing of previous distributed photovoltaic projects. 2023Q3's decision-making distributed photovoltaic project has an installed scale of 223400 kilowatts, a month-on-month change of + 50.74% and a year-on-year change of-6.96%. The performance of the project is expected to be further thickened after the project is put into production. In terms of building energy conservation, the company has actively acquired building energy conservation projects in public organs, hospitals, schools and other fields to achieve a substantial increase in business income.

Biomass projects are a drag on performance, follow-up or gradual withdrawal. As of 2023Q3, the company's comprehensive energy utilization sector achieved operating income of 290 million yuan, a year-on-year change of-39.93%, of which biomass project achieved operating income of 133 million yuan, a year-on-year change of-58.61%, which was a great drag on the company's performance. The company plans to withdraw from the biomass power generation business through strategic adjustment in order to cope with the operating pressure faced by the biomass power generation industry due to lagging subsidies and high fuel prices, and expects the strategic adjustment of the company's business to improve the company's performance.

A sharp drop in renewable energy subsidies and value-added tax rebates is a drag on operating cash flow. As of 2023Q3, the net cash flow of the company's operating activities was 513 million yuan, a sharp decline of 46.68% compared with the same period last year, of which the net cash flow of operating activities of 2023Q3 Company was 381 million yuan, down about 12.41% from the same period last year. The decrease in cash flow from the company's operating activities is mainly due to a substantial decrease in renewable energy subsidy rebates and a reduction in VAT rebates. If the subsequent renewable energy subsidy rebates are accelerated, the company's operating cash flow may be improved.

Investment advice: considering the impact of high fuel prices and delayed subsidies, the company's biomass project profits continue to be under pressure and the exit time is uncertain, at the same time, affected by industry competition and other factors, the company's distributed photovoltaic installation rhythm has slowed down. We downgrade the company's profit forecast and estimate that the company's net profit from 2023 to 2025 is estimated to be RMB802max 976 million (the previous value is RMB1.117 billion), an increase of 3.3%, 40.3% and 21.8% respectively over the same period last year. Considering that the company's distributed photovoltaic project has the advantage of high electricity price in Guangdong, the reference company gives the company 30xPE in 2024, corresponding to the target price of 6.35 yuan, which is 15.3% higher than the current market value, and maintains the "recommended" rating.

Risk hint: macroeconomic fluctuation risk, electricity price downward risk, project construction is not as expected.