The target price is 6.47 yuan, maintaining the “buy” rating
The marketization of sanitation services is progressing steadily, and the penetration rate of new energy sources for sanitation equipment continues to increase. As a leader in the sanitation market, Yingfeng Environmental has a clear competitive advantage and is expected to benefit fully. Considering mechanized substitution to save labor costs, we raised the gross margin forecast for sanitation services. The company's net profit for 2023-2025 is estimated to be 8.34/10.42/1,310 billion yuan (previous value: 742/9.09/1,124 billion yuan), respectively. Comparable company Wind unanimously expected the average PE value in 2024 to be 15.1 times. Considering the company's stable position as a leader in sanitation equipment, the company was given 19.6 times PE in 2024, with a target price of 6.47 yuan (previous value of 5.87 yuan) to maintain “buying”.
The number of new contracts added in January-October ranked first. As of November 22, it had collected 1.9 billion yuan for the whole year. According to statistics from Environment Division, from January to October 2023, Yingfeng Environmental signed a total of 66 new urban service projects. The new projects covered 17 provinces across the country, with a total new contract volume of 7.24 billion yuan, and an additional annualized contract amount of 1.39 billion yuan, ranking first in the same industry market. According to data from the Department of the Environment, as of November 22, Yingfeng Environmental has received 19 “100 million yuan bids” in 11 provinces this year (the total contract amount is not less than 100 million yuan).
The market space for sanitation services in China is vast. We believe that the leading advantage of the company is obvious, and the revenue from the sanitation service business is expected to continue to grow.
With the implementation of full electrification, the market space for new energy sanitation vehicles is expected to reach 9.7 billion yuan/November 13. On November 13, 15 cities including Beijing were selected for the first batch of full electrification. According to the Banking Insurance Regulatory Commission's sanitation vehicle insurance data, 15 pilot cities sold 15,000 sanitation vehicles in 2022, including 2,611 electric sanitation vehicles, with a new energy penetration rate of 17%. Sanitation demand has immediate demand attributes. Assuming that the annual sales volume of sanitation vehicles in 24-25 is the same as in 2022, the new energy penetration rate in pilot cities reaches 80%, other cities 7% (the same as the national penetration rate in January-October), and the unit price is 580,000 yuan/vehicle (estimated according to Yutong Heavy Industries' 21st annual report data), we estimate that the national sales volume of new energy sanitation vehicles in 24-25 is about 16,700 units/year (2022 sales volume: 5100 units), corresponding market space is about 9.7 billion yuan/year.
The sales volume of new energy sanitation vehicles was +33% year-on-year, representing that China sets international standards for sanitation equipment. According to the Banking Insurance Regulatory Commission's sanitation vehicle insurance data, in January-October, 65,000 sanitation vehicles were insured, -8% year on year, new energy sanitation vehicle sales volume was 4577 units, +10% year on year, penetration rate 7.0%, up 1.0 percentage point year on year; Yingfeng environmental sanitation vehicle sales volume was 1,538 units, +33%, penetration rate 15.7%, up 5.6 percentage points year on year. In October of this year, as the editor-in-chief, Yingfeng Environmental took the lead in preparing ISO/CD 13155 “Main Functional Components and Performance Index Terms for Garbage Trucks”. This is the first time that China has participated in formulating an international standard as a leader in the field of sanitation equipment, demonstrating Yingfeng Environmental's strong technical strength and confidence in gaining a foothold in the global market. The company's strong sanitation equipment strength and high demand for new energy equipment are expected to drive future performance growth.
Risk warning: Asset impairment and credit impairment exceeded expectations, sanitation equipment sales fell short of expectations, and the sanitation marketization process fell short of expectations.