Performance Overview: The company achieved operating income of 4.67 billion yuan in 2023, +3.2% year on year; net profit to mother of 870 million yuan, +15.2% year on year; weighted average ROE of +0.01pct year on year to 9.89%.
Net profit to the mother increased 15.2% year on year in 2023, and the water business contributed +5.1 pct to 39.0% year on year in 2023, mainly due to the decline in PPP project volume and the impact of the company's strict control of sewage treatment costs and the increase in the company's overall gross margin. By business: 1) Sewage: Revenue of 3.38 billion yuan in '23, +5.8% YoY; gross margin +7.7pct YoY to 42.9%. 2) Reclaimed water:
Revenue in '23 was 430 million yuan, +11.0% year over year; gross margin was +3.8pct year over year to 41.0%. 3) Cooling and heating: 23-year revenue of 250 million yuan, +2.3% year over year; gross margin -5.8pct to 13.3% year over year, mainly affected by increased labor costs and operating costs. 4) Hazardous waste disposal: Revenue of 160 million yuan in 23 years, -33.7% year over year; gross margin was -31.8 pct to -0.2% year over year, mainly affected by intense market competition.
Operating cash flow recovery is improving
1) The net cash flow from the company's operating activities in 2023 was 990 million yuan, +8.8% year on year; sales of goods and provision of labor received 3.89 billion yuan in cash, +6.7% year-on-year. 2) Net cash flow from investment activities - 1.64 billion yuan, and the outflow increased significantly, mainly due to the company's successful implementation of projects in the southern suburbs of Karamay and Enshi, Hubei. 3) Net cash flow from financing activities was 0.3 billion yuan. The year-on-year decline was mainly due to the company's receipt of fixed increases in 2022 and the high base.
Sewage business reduces costs and increases efficiency, and photovoltaic power generation develops collaboratively
In 2023, the company's sewage treatment operating costs were -6.8%: 1) The company laid out supporting sewage treatment plants for the photovoltaic power generation business, and began construction of photovoltaic power generation projects such as 3 sewage treatment plants in Jingu, Beicang, and Xianyang Road in 23; replacing part of the electricity consumption through new energy sources, it effectively saved electricity costs, and developed the sewage treatment and photovoltaic power generation business collaboratively. 2) The company increased investment in R&D, with R&D expenses +21.9% year-on-year in 2023, and the introduction of related processes reduced some pharmaceutical investment; in 2024, the company plans to invest no less than 1.25% of annual operating income to further strengthen technology research and development and technical reform.
Solid waste hazardous waste treatment+new energy cooling and heating to create a comprehensive environmental protection enterprise 1) Solid waste hazardous waste: The company's solid waste treatment projects are mainly distributed in Shandong and Jiangsu, and the project volume is the same as the same period last year. 2) New energy cooling and heating: In 2023, the company added 503,000 square meters of service area, with a total service area of 3.9 million square meters. The company's “one, two wings” idea continues to develop.
Investment advice: The net profit for 2024-2026 is estimated to be 884, 9.45, and 1,052 million yuan, up 1.01%, 8.12%, and 11.28% year-on-year; diluted EPS will be 0.56, 0.60, and 0.67 yuan, respectively, and the corresponding PE price on March 25 will be 9.85, 9.11, and 8.18 times, respectively. Due to the relatively slow growth rate of the company's water treatment scale and the loss of hazardous waste, we adjusted our profit forecast and downgraded it to an “increase in wealth” rating.
Risk warning: risk of new project expansion falling short of expectations, risk of lowering sewage treatment costs, risk of hazardous waste project treatment prices falling short of expectations, risk of poor payment of accounts receivable, risk of cost increases