The company's performance is growing rapidly. The company achieved revenue of 4.62 billion yuan (+38.9% year-on-year) and net profit of 1.57 billion yuan (+25.1% year-on-year) in the first three quarters of 2023. By business, environmental operation projects achieved revenue of 2.26 billion yuan (+20.3% year-on-year), and equipment manufacturing and service businesses achieved revenue of 2.34 billion yuan (+66.5% year-on-year). 2023Q3 had quarterly revenue of 1.73 billion yuan (+62.2% year-on-year) and net profit of 540 million yuan (+56.5% year-on-year). The rapid growth in performance was mainly due to the company's good operation, project operating revenue, and the increase in equipment, EPC and service business revenue.
Gross margin has declined slightly, and cost control is excellent. The company's gross margin for the first three quarters of 2023 was 47.1% (-2.8pct), and net profit margin was 31.5% (-1.1 pct). The company had a sales expense ratio of 0.2% (-0.2pct), management expense ratio of 3.4% (-0.3pct), financial expense ratio of 3.6% (-1.5pct), and a total ratio of three fees of 7.2% (-2.0pct) in the first three quarters of 2023, with excellent cost control. The company's net operating cash flow for the first three quarters of 2023 was 1.38 billion yuan, +7.9% year-on-year, and cash flow continued to improve.
The cash flow of waste management projects is steady, and ongoing/potential projects are expected to support continued growth in performance. At the end of 2023Q3, the domestic waste incineration treatment operation and trial operation projects controlled by the company reached 49 (of which 6 were trial operations), with a total operation scale of about 33,700 tons/day; 6 waste incineration holding projects were under construction at the end of the period, with a total treatment scale of about 3,000 tons/day; the planned projects include the Longnan project and the second phase of some waste incineration power generation projects, and performance is expected to continue to grow.
The equipment business is developing rapidly and is expected to contribute significantly to incremental performance. In the third quarter of 2023, the company completed the signing of environmental protection equipment: Zhongchengyuan (Beijing) County Small Domestic Waste Incineration Project (100t/d) incinerator and waste heat boiler system contract (100 million yuan); Fuyuan County domestic waste incineration power generation project general contract (90 million yuan). In terms of new materials, the signing of the equipment and installation contract for the Jingmen Grimmie Cogeneration Project (240 million yuan); the purchase and sale contract for the new mineral processing facilities of Jingmen Grimmie, mixing, thickeners, etc. (490 million yuan); the Weiming Shengqing steam turbine equipment project contract and embedded parts purchase and sale framework agreement (0.2 billion yuan). The contract amount for 2023Q3 in a single quarter reached 840 million yuan, and the total contract amount for the first three quarters reached 2.71 billion yuan, which is expected to contribute significantly to incremental performance.
The new energy materials business continues to advance, and production capacity is about to be implemented. During the reporting period, the 40,000-ton Indonesian high-ice nickel project of Jiaman, a subsidiary of the company, has entered the equipment installation stage in the third quarter. The first phase of two production lines totaling 20,000 tons is scheduled to be commissioned and put into operation in the first half of next year, and the new materials project for lithium batteries in Wenzhou is progressing smoothly. Furthermore, in July 2023, Weiming (Singapore), a subsidiary of the company, signed the “Joint Venture Agreement on the Construction of a New Energy Nickel Raw Material (Nickel Intermediates) Project for the Smelting of Indonesian Laterite Nickel Ore to Produce Nickel Raw Materials (Nickel Intermediates) (20,000 tons of nickel/year)”. In August 2023, Weiming Shengqing and the Wenzhou Bay New Area Management Committee signed the “Strategic Cooperation Framework Agreement for a High-purity Electrolytic Nickel Project with an Annual Output of 50,000 tons”, with a total investment of about 700 million yuan.
Investment suggestions: As a leader in private waste incineration, the company has excellent profitability. Ongoing projects fully support performance growth, and new energy projects are expected to open up room for performance growth. We expect the company's net profit from 2023-2025 to be 20.5/27.9/3.51 billion yuan, EPS is 1.2/1.6/2.1 yuan, and corresponding PE is 14.8X/10.9X/8.7X respectively, maintaining the “buy” rating.
Risk warning: waste incineration policy risks, increased operating costs, project progress falling short of expectations.