Core views:
The recycling business affected short-term results, and net operating cash flow increased 27% year over year. The company released its three-quarter report for 2023. The first three quarters achieved operating income of 2,400 billion yuan (+3.06% yoy) and net profit of 517 million yuan (-4.35% yoy), of which net profit was 165 million yuan (-19.49% yoy) in the third quarter. The decline in performance was mainly due to a loss of RMB 31.04 million in Q1-3 in the resource recycling sector (profit of RMB 14.57 million in the same period last year), while the company's main waste incineration profit continued to grow positively. In addition, the company achieved net operating cash flow of 819 million yuan (+27.07% year-on-year) in the first three quarters, but net investment cash outflow was 814 million yuan (-35% year-on-year). Operating cash increased but capital expenditure contracted, free cash flow has been corrected, and the potential for subsequent dividends is outstanding.
Ongoing projects are gradually being transferred, and the amount of garbage disposal and power generation is growing steadily. The first three quarters achieved power generation capacity of 2.175 billion kilowatts (+1.89% yoy), feed-in electricity volume of 1,881 million kilowatts (+2.38% yoy), garbage storage volume of 6.48 million tons (+7.85% yoy), and kitchen grease extraction of 19,000 tons (+21.98% yoy). As of 2023H1, the company has an incineration production capacity of 21,600 tons/day, trial operation+production capacity under construction of 1,700 tons/day; a production capacity of 2,650 tons/day for food delivery and cooking, and a production capacity of 670 tons/day under construction+preparation. The company's ongoing projects have been basically put into operation and are about to enter a stable profit stage.
Ample cash flow provides dividend potential, and a dividend plan for the third quarter was launched for the first time. The company announced the “Profit Distribution Plan for the First Three Quarters of 2023". It plans to distribute cash dividends of 2 yuan (tax included) for every 10 shares, with a total cash distribution of 86 million yuan, accounting for 16.63% of net profit for the first three quarters. This profit distribution plan is the first dividend plan to be launched in the third quarter since recent years. Combined with the company's 30% dividend ratio in '22, the company's capital expenditure continued to shrink, and the net operating cash inflows over the past two years have all exceeded 1 billion yuan, subsequent dividend increases are worth looking forward to.
Profit forecast and investment advice: Undervalue pure solid waste leaders and look forward to future dividend potential.
Net profit for 23-25 is estimated at 729/800/854 million yuan, or 8.79/8.01/7.50 times the latest PE. Referring to peer valuations and the company's current 3.34% TTM dividend rate level, the company was given a PE valuation of 15 times in 23, with a reasonable value of 25.45 yuan/share, maintaining a “buy” rating.
Risk warning. Accounts receivable repayment risk; recycling business profit expectations are low; dividend expectations are low.