Revenue declined slightly, and net profit declined year-on-year due to adjustments such as goodwill impairment preparations. In 2023, the company achieved revenue of 10.97 billion yuan, a year-on-year decrease of 7.6%. Among them: the environmental protection equipment manufacturing business achieved revenue of 9.83 billion yuan (yoy -8.5%), the project operation business achieved revenue of 760 million yuan (yoy -10.3%), the soil remediation business achieved revenue of 180 million yuan (yoy +86.6%), and the new energy business achieved revenue of 366.42 million yuan (yoy +686.6%). Net profit to mother reached 50,000,000 yuan, yoy -36.7%. Looking at Q4 in a single quarter, revenue reached 3.44 billion yuan (yoy -21.8%), and net profit to mother achieved -130 million yuan (yoy -178.8%). The slight decline in revenue was mainly due to a decline in revenue from environmental protection equipment manufacturing and project operation. The decline in net profit to mother was mainly due to a total of 361 million yuan in preparation for impairment of goodwill in the current period, the new energy business incurred costs during the construction period of about 80 million yuan, and one-time non-operating compensation payments and external donations for the company's historical projects totaling about 36 million yuan.
Profitability continued to increase, and cash flow from operating activities improved substantially. In 2023, the company's sales/management/R&D/finance rates were 2.7%/6.3%/4.3%/1.4%, yoy+0.5pct/+0.8pct/-0.1pct, the total three fee ratios were 10.4%, yoy+1.2pct, respectively. In terms of gross margin, the overall gross margin increased by 0.3 pct to 23.7%, mainly due to the company's comprehensive strengthening of contract quality control and the increase in gross margin of environmental protection equipment manufacturing. Among them, environmental protection equipment manufacturing/project operating revenue/soil remediation/new energy business achieved gross profit margins of 23.4%/27.5%/9.1%/46.6%, yoy+0.4pct/-2.4pct/-1.6pct/-2.0pct, respectively. The net cash flow from operating activities was $17.01 billion (yoy +104.4%), mainly due to an increase in cash received from sales of products and a decrease in cash payments for the purchase of goods.
The environmental protection business “ballast stone” position is stable, and order quality has improved markedly. In 2023, the company added 10.29 billion yuan in environmental protection engineering contracts, an increase of 5.1% over the previous year, of which the power industry accounted for 58.1% and the non-electric industry accounted for 41.9%. Benefiting from the “Xiaoyangchun” policy of the coal and power industry and the boost in demand for transformation and upgrading, the power industry saw a large year-on-year increase in new contracts, and the steel and cement industries were generally weak due to downstream demand. At the end of the period, the company had environmental protection project contracts totaling 18.510 billion yuan, which can still provide good performance support. At the same time, the company strictly controlled and contracted projects that did not meet the company's gross margin control line and advance contract, and the quality of new contracts and repayment conditions for the environmental protection business were significantly improved.
The new energy business has achieved a good start, and we look forward to the implementation of the mine green power project to release results. The company's 5 GWh lithium iron phosphate energy storage battery project was successfully put into operation on January 18, 2024; Longjing Honeycomb's first phase 2 GWh energy storage battery module PACK production line was completed and put into operation on August 28, 2023, and has achieved an additional contract order of more than 1.5 billion yuan; the clean energy business based on Zijin Mine is fully developed, and construction of the nearly 1GW wind green power project is progressing smoothly. It is expected that the results will continue to be released.
Investment advice: Maintain a “buy” rating. The company is a leading enterprise in the field of atmospheric treatment. Together with Zijin Mining, we are actively developing the second growth curve of “energy storage+mine green electricity”. It is expected that the company's performance will usher in rapid growth. Considering factors such as impairment of goodwill, we expect the company to achieve net profit of 11.4/16.0/2.0 billion yuan in 2024/2025/2026, corresponding to PE11.8/8.4/6.7x.
Risk warning: industry policy risks, increased market competition, project progress falling short of expectations, risk of raw material price fluctuations.