Net profit to the mother increased 19.3% year-on-year in 2023, maintaining the “buy” rating, Beijing Holdings Urban Resources announced its 2023 results on March 25, and achieved operating income/net profit of RMB 500.58/ 285 million yuan for the whole year, +18.9%/+19.3% over the same period last year. We expect net profit of RMB 319/3.95/485 million in 24-26 (previously HK$519/669 million in 24-25). Referring to the 2024 Wind consensus average PE value of 8.7x, considering the company's low liquidity in the Hong Kong stock market, the company was given a target PE of 7.0x in 2024, corresponding to a target price of HK$0.73 (previous value of HK$0.98, based on 8.9x PE in 2023), maintaining a “buy” rating.
Urban service revenue +25.5% YoY, gross margin +0.2pp
The company's urban service business revenue in 2023 was RMB 4.344 billion (+25.5% year over year), accounting for 85.9% of total revenue. In terms of gross margin, the gross margin of the urban environmental management service business was 22.0% (+0.2pp). The increase in gross margin was mainly due to improved operating efficiency and a decrease in the average price of diesel/gasoline; the gross margin of the new construction service business was 8.0% in 2023. This business mainly covers services such as garbage transfer stations/public toilet construction. In the future, the company will actively establish a multi-level linked internal quality control and supervision mechanism, formulate standardized internal quality control supervision plans, and human efficiency and vehicle efficiency may be further improved.
There are plenty of orders for urban services, which is expected to drive steady revenue growth
By the end of 2023, the total number of orders pending execution for the company's urban services was RMB 28.28 billion, and the number of orders in progress was RMB 5.17 billion; the total number of new orders added in 2023 was RMB 5.40 billion, the new orders were converted to an annualized RMB 1.01 billion, and the new orders contributed RMB 200 million in revenue for the year. In 2024, the company won bids for the Wujiagang Sanitation Project in Yichang and the Luoyang Jianxi District Big Steward Project, with an annualized amount of 60 to 90 million yuan. We believe that abundant orders are expected to drive steady revenue growth in the city services business in 2024.
The increase in revenue from hazardous waste treatment did not increase profit, and the dividend rate increased to 5.5%
The hazardous waste treatment business achieved revenue of 547 million yuan (+3.8% YoY) and a gross profit margin of 17.2% (YoY -1.2pp). The main reason for the decline in gross margin was the decline in average treatment unit price/sales price. The company's 2023 harmless volume/price/gross margin was +23.5%/-17.3% /-1.0pp, and resourced volume/price/gross margin was +14.6%/-6.6%/-1.3pp. The company will improve performance by increasing the development of small-scale resource projects and actively exploring ways such as soot, waste residue, and wastewater reuse/steam use/photovoltaic power generation.
The company's accounts receivable in 2023 were +26.8% YoY to RMB 2,494 million, and cash and cash equivalents after early repayment of part of the loan were -23.3% YoY to RMB 1,081 million; the 2023 dividend ratio increased to 30.7%, and the current dividend ratio reached 5.5%.
Risk warning: The marketization process of the urban service industry is slower than we expected. The rise in urban service costs has exceeded expectations, and the unit price of hazardous waste treatment continues to decline.