The target price is 15.33 yuan, maintaining the “buy” rating
On December 20, Chengfa Environmental completed the second round of inquiries on convertible bond applications. According to the December 19 announcement, the total capital raised by convertible bonds was adjusted from 2.3 billion yuan to 1.96 billion yuan, and the issuance of convertible bonds continued to advance. Lowering the gross margin forecast for solid waste treatment and integrated solutions, we expect the company's net profit from 2023-2025 to be 11.51, 12.69, and 1,410 billion yuan respectively (previous values of 1,251, 13.72, and 1,515 billion yuan), and solid waste/expressway net profit of 5.99 million yuan and 552 million yuan in 2023. Comparable companies unanimously anticipated the average PE value of 9.2x/9.8x in 2023. Considering that there is some uncertainty about the expansion of solid waste projects outside of Henan Province and overseas, the solid waste/expressway was given PE 7.4x/9.8x in 2023, corresponding to the target price of 15.33 yuan (previous value: 16.14 yuan), corresponding to PE 8.6x in 2023, maintaining the “buy” rating.
Business indicators have improved, and heating transformation has raised the level of profitability
As of December 13, the company's waste-to-energy production capacity was 28,550 tons/day (excluding participating companies), including 31 operating projects and a production capacity of 2,7050 tons/day. In addition, the company was entrusted to manage the waste-to-energy project of 6,000 tons/day; the operating indicators were better compared to the half year. After the heating conversion, the tonnage capacity of the factory was 299.60 degrees, the tonnes of feed-in electricity was 255.89 degrees, and the factory electricity consumption rate was 14.57%. The heating transformation completed 9 projects throughout the year. After the heating transformation, fees were market-oriented, repayment was fast, and the profit margin was higher, and the overall profitability of the solid waste disposal business improved.
The industry developed collaboratively, and the annualized amount of sanitation contracts reached 3.1 billion yuan
In the field of environmental health services, the company has operated 22 projects with a total contract value of over 2.5 billion yuan, with an annualized contract amount of 310 million yuan; 1 project under construction, with an annualized contract value of 14 million yuan. The company has now expanded 6 sanitation projects in waste-to-energy project areas, and industrial synergy is beginning to show. In the next 3 to 5 years, the company will continue to expand its revenue scale through innovative business models such as collaborating on waste-to-energy projects and enriching business formats related to urban operation.
Focus on low-carbon green construction and actively expand business areas
The share of waste-to-energy projects in integrated environmental protection solutions has gradually declined, and new breakthroughs have been achieved in obtaining projects such as municipal administration, industrial parks, and pilot base construction. A total of 82 projects were carried out in the first three quarters. Since the fourth quarter, Walkman has successively signed contracts for the renovation of the Harbin Qunqin plant, the procurement of steel bars for the third sewage treatment plant project in Shangjie District of Zhengzhou City, and the general contract for the EPC project of Chengfa Luhuan Plastics. The contract amounts are 9.35 million yuan, 9.88 million yuan, and 175 million yuan respectively. In the next 3 to 5 years, the company will focus on low-carbon green construction, focus on digital transformation to empower the company's project management, and build a digital construction enterprise with core competitiveness.
Risk warning: Waste incineration project operation risks, operating efficiency improvement falls short of expectations, and engineering business development falls short of expectations.