Key points of investment
Event: High Energy Environmental Announcement Report for the third quarter of 2023. In the first three quarters of 2023, the company achieved revenue of 7.490 billion yuan, +21.00% year-on-year; net profit of 658 million yuan, +9.13% year-on-year; and basic earnings per share of 0.431 yuan/share, -6.51% year-on-year. Among them, in the third quarter of 2023, the company achieved revenue of 3,022 billion yuan, +37.78% year-on-year; net profit of 164 million yuan, +3.40% year-on-year.
Our comments on this are as follows:
The commencement of production of new projects has helped increase the scale of operations, and the products have not yet been fully sold, which has affected quarterly profits in stages.
In 2023, as the company Jiangxi Xinke and Jinchang Company were put into operation, the company's operating scale expanded. The company's revenue/net profit for the first three quarters was +21.00%/+9.13% year-on-year, respectively. However, in the third quarter of 2023, the company's net profit was only +3.40% year-on-year, presumably mainly because the products produced were not fully sold. According to the company's report for the third quarter of 2023, the company's inventory balance as of the end of the reporting period was 4.492 billion yuan, mainly because the raw materials purchased by Jiangxi Xinke and Jinchang to meet normal production needs and the finished products produced were not fully sold. After the finished products are sold, it is expected to further release the company's profit scale.
Investment income increased as a result of the disposal of Yuwada's equity and futures positions and the liquidation of futures positions. The increase in government subsidies helped increase other earnings by +60.72% in the first three quarters. In the first three quarters of 2023, the company achieved investment income of 149 million yuan, +45.49% over the same period last year. The main reason was the liquidation of futures positions and profit from the disposal of Yuhetian's shares. In addition, the performance of participating companies also increased. In addition to investment income, the company's other income for the first three quarters was 773.373 million yuan, +60.72% over the same period last year. The main reason was the increase in government subsidies.
Net operating cash flow is suppressed by the procurement of raw materials and released after the raw materials are processed and sold. In the first three quarters of 2023, the company's net operating cash flow was 1,198 billion yuan, -283.02% year-on-year. The main reason was to guarantee the normal production and operation of Jiangxi Xinke and Jinchang Hi-Energy to pay for raw material purchases. After the project was put into operation, some products were sold for repayment, but most of the raw materials have not yet been processed and sold, so it is expected that the cash flow will return further after processing and sale. As of the third quarter of 2023, the company's cash and equivalent balance at the end of the period was $1,111 billion, which remained sufficient.
Profit forecast and investment advice: Maintain an “increase in holdings” rating. We adjusted the company's profit forecast and predicted that the net profit achieved by the company in 2023-2025 was 9.21/11.16/1,370 billion yuan, respectively, +33.0%/+21.2%/+22.8%, respectively; the PE valuation corresponding to the closing price of October 27, 2023 was 13.2x/10.9x/8.9x, respectively.
Risk warning: Risk of metal price fluctuations, risk of project construction and climbing progress falling short of expectations, risk of hedging, policy risk, risk of project repayment falling short of expectations, etc.