Event: In the first three quarters of 2023, the Company realized operating income of RMB 7.49 billion yuan, with an increase of 21.00%; net profit attributable to parent was RMB 658 million yuan, with an increase of 9.13%; net profit deducted from non-parent was RMB 574 million yuan, with an increase of 4.42%; weighted average ROE decreased by 2.77pct to 7.12%, in line with our expectations.
Revenue continued to grow, and new projects were put into operation and profits were released. In the first three quarters of 2023, the Company realized operating income of RMB 7.49 billion yuan, with an increase of 21.00%; net profit attributable to parent company of RMB 658 million yuan, with an increase of 9.13%; net profit deducted from non-parent company of RMB 574 million yuan, with an increase of 4.42% at the same time. In the third quarter of 2023, the Company realized operating income of CNY 3.022 billion, with a year-on-year growth of 37.78% and a month-on-month growth of 10.55%, net profit attributable to parent of CNY 164 million, with a year-on-year growth of 3.40%, and net profit deducted from non-parent of CNY 143 million, with a year-on-year growth of 6.41%. With the projects of Jiangxi Xinke and Jinchang Company in the resource-oriented plate put into operation, the income continues to grow month-on-month, and the project is still climbing at the initial stage of operation, so the profit release is worth looking forward to.
Core projects are gaining momentum and growing strongly. As a core project of deep resource utilization, Jiangxi Xinke can realize considerable profit contribution on the one hand, and further enable the resource utilization plate to realize inter-project collaboration on the other hand. 1) From the perspective of balance sheet, as of September 30, 2023, the fixed assets of the Company were RMB 2.813 billion yuan, an increase of 41.95% compared with the end of 2022, mainly due to the transfer of Jiangxi Xinke production line into fixed assets, and the inventory of the Company was RMB 4.492 billion yuan, an increase of 70.29% compared with the end of 2022, mainly because the raw materials purchased by Jiangxi Xinke and Jinchang Company to meet the normal production needs and the finished products produced have not been completely sold. 2) From the perspective of cash flow statement, in the first three quarters of 2023, the net cash flow of the Company's operating activities was-1.198 billion yuan, mainly for the purchase of raw materials to ensure the normal production and operation of Jiangxi Xinke and Jinchang High Energy. After the project was put into operation, some products were sold and returned, but most raw materials had not been processed and sold. New projects are put into operation and ready for launch, and profits are gradually released and growth accelerates.
Acquisition of Zhongxin Hongwei to expand plastic recycling, leading track integration to create a multi-category recycling platform.
The company plans to invest RMB 140 million yuan in total to acquire 51% equity of Zhongxin Hongwei, and the acquisition target promises to achieve a performance target of RMB 2500/3500/45 million yuan from 2024 to 2026. Zhongxin Hongwei is mainly engaged in comprehensive recycling and utilization of PA66, PA6, PET and other varieties of plastics. This acquisition company further expands the comprehensive utilization and recycling business of recycled plastics. The company has formed a national influence through the layout of key regional projects, and at the same time, the layout of multi-metal recycling has realized deep recycling. The production capacity has covered metals (copper, nickel, lead, zinc, tin, etc. and rare precious metals), plastic glass and tire rubber. The platform will effectively stimulate synergies between projects and ensure the expansion of waste recycling scope and improvement of operational efficiency.
Profit forecast and investment rating: Jiangxi Xinke and Jingyuan Phase II were successfully put into operation, contributing profits and enabling front-end resource projects to achieve synergy. Considering the pace of project operation, we lowered the net profit of parent company from 11.0/14.3/18.2 billion yuan to 9.4/11.8/14.4 billion yuan from 2023 to 2025, corresponding to PE of 13/10/8x (2023/10/31) from 2023 to 2025, maintaining the "buy" rating.
Risk hint: the construction of hazardous waste capacity is not as expected, the utilization rate of capacity is not as expected, and the competition is intensified.