Introduction to this report:
The company is a leader in the waste incineration industry with the fifth highest production capacity in the industry. The project is deeply involved in Dongguan and spread throughout the country. Dongguan has significant regional advantages, and shareholder advantages and reserve production capacity support performance growth. The “incineration +” strategy creates new growth points.
Summary:
It was covered for the first time, and a “increase in holdings” rating was given. We forecast the company's net profit for 2023-2025 to be HK$1,208, HK$13.78 and HK$1,581 million, corresponding to EPS of HK$0.50, 0.56 and HK$0.65, respectively. It was covered for the first time, and a “increase in holdings” rating was given.
Yuefeng Environmental Protection: Leading domestic waste incineration power generation enterprise in Guangdong with high-quality projects. The company is a leader in the waste incineration industry that is deeply involved in Dongguan and radiates the whole country, accounting for 73% of the market share in Dongguan and 21% in Guangdong. The on-hand waste incineration production capacity is 54,540 tons/day, of which 42,690 tons/day has been put into operation, ranking fifth in the country in terms of production capacity. There are plenty of reserve projects, and there is still room for growth in production capacity.
Dongguan has significant regional advantages, and shareholder advantages and reserve production capacity support performance growth. 1) The company's production capacity in Guangdong Province and Dongguan is 26,800 tons/day and 10,400 tons/day, respectively. Guangdong has a well-developed economy, strong financial payment capacity, large population, and high calorific value of garbage. Therefore, the company's waste incineration projects are of high quality, capacity utilization is high, and profit levels are excellent. 2) In 2017, the company received a strategic investment of HK$1 billion from SSE Holdings. SSE Holdings became the company's second largest shareholder, holding 12.22% of the shares. As of 2023H1, the IPO shareholding ratio has increased to 19.48%. At the same time, it also subscribed for HK$1.64 billion exchangeable bonds issued by major shareholders on October 5. If shares are converted, the shareholding ratio will further increase, and the majority shareholder advantage will help the company continue to develop projects outside of Guangdong Province. 3) As of the mid-year report of 2023, the company's operational production capacity reached 42,000 tons/day, and there is still 13,000 tons/day of production capacity under construction/preparation. The production capacity elasticity of 27.8% ranked among the highest in the industry, laying the foundation for future performance growth.
Vigorously develop the “incineration +” strategy to create new performance growth points. The company is actively expanding its industrial chain through acquisitions, deploying upstream sanitation services, downstream fly ash and slag treatment, and exploring the use of steam generated from waste incineration for heating. At the same time, the company has also deployed smart parking operations, with more than 48,000 parking spaces under management. The company gradually diversifies its revenue channels and continues to cultivate new performance growth points.
Risk warning: industry policy changes, market competition is fierce, repayment speed is lower than expected, project operation conditions are lower than expected, on-going project commissioning progress is lower than expected, new project expansion falls short of expectations, upstream and downstream business development falls short of expectations, etc.