Non-net profit deducted +21% compared to the same period, maintaining the “increase in wealth” rating
Energy Saving Guozhen released its annual report. In 2023, it achieved revenue of 4.128 billion yuan (yoy +0.71%) and net profit of 392 million yuan (yoy -3.11%), higher than Huatai's expectations (estimated 374 million yuan), and deducted non-net profit of 345 million yuan (yoy +20.54%). Among them, Q4 achieved revenue of 1,350 million yuan (yoy +5.61%, qoq +12.75%) and net profit to mother of 140 million yuan (yoy +0.76%, qoq +117.11%). We expect the company's 2024-2026 EPS to be 0.61, 0.66, and 0.71 yuan respectively (previous value 2024-2025 0.60 and 0.67 yuan). Comparatively, the company's 2024 Wind unanimously expected an average PE value of 10.6 times, giving the company 10.6 times PE in 2024, with a target price of 6.47 yuan (previous value of 8.10 yuan), maintaining the “gain” rating.
Engineering revenue fell 6% year on year, and the steady increase in operating revenue shows that in 2023, the company achieved engineering revenue of 1.56 billion yuan, accounting for 37.7% of revenue, adding 2.25 billion yuan in contract amount for engineering projects, increasing gross margin by 1.8 percentage points to 12.6% year on year; operating revenue of 2.42 billion yuan, +2.9% year on year, accounting for 58.5% of revenue, and gross margin increased 1.3 percentage points year on year to 36.0%. Operating service revenue grew steadily, demonstrating development resilience. The company plans to pay a dividend of $0.13 per share, with a dividend ratio of 23% and a current dividend ratio of 2.2%.
Recovery of operating expenses is lagging behind, with accounts receivable at the end of 2023 +25%. As of the end of 2023, the company's accounts receivable were 2.50 billion yuan, +25% year-on-year. The main reason was that the current government's financial resources were affected and operating fee collection was delayed; contract assets of 1.17 billion yuan, +14% compared to the same period, due to unsettled payments in the output value of the project; the Jieshou project entered commercial operation period, and long-term receivables reached 1.08 billion yuan (68.82 million yuan at the end of 2022). The net operating cash flow inflow in 2023 was 420 million yuan, -32% year over year, mainly due to delayed recovery of operating expenses; net cash flow outflow from investment activities was +33% to 630 million yuan due to continued investment in construction projects such as Wu'an and Jishou; and 81 million yuan of monetary capital, -30% year over year, mainly due to payment of convertible bonds.
Build a core advantage of “technology+operation”. The sewage treatment scale reached 5.19 million tons/day. The company had a “technology+operation” core advantage in the municipal water industry. As of 2023, it had more than 100 sewage treatment plants nationwide, with a treatment scale of 5.19 million tons/day (including 165,000 tons/day under construction), a hosting operation scale of 1.83 million tons/day, and a pipeline network scale of 4,489 kilometers/year. Maiwang Environmental, a holding subsidiary of the company, is well known in the field of industrial wastewater treatment. The engineering projects span various industries such as petrochemicals, coal chemicals and steel, and the industrial wastewater treatment operation scale is nearly 200,000 tons/day.
Risk warning: New orders for environmental engineering fell short of expectations, the recovery of operating costs deteriorated, and the energy saving synergy effect fell short of expectations.