Introduction to this report:
The volume and price of the sewage and water supply business increased, and steady operation was in line with expectations. From 2021 to 2023, the company paid a steady annual dividend of around HK$1.58 billion for three consecutive years, and high dividend expectations are stable.
Summary:
Maintain an “Overweight” rating. According to operating data, we lowered the company's projected net profit for 2024-2025 and increased 2026 to 19.66 (-10%), 20.40 (-12%), and RMB 2,150 billion, respectively, and the corresponding EPS was 0.20, 0.20, and 0.21 yuan respectively. We reaffirm that the company is the leader in the water treatment industry with the largest production capacity in the country, and the sewage and water supply business is growing steadily; capital expenditure has entered a downward cycle, cash flow has improved, stable high dividends, and the characteristics of high dividends are obvious. It is expected to usher in a revaluation.
In 2023, we achieved net profit of RMB 1,896 billion, and the results were in line with expectations. 1) In 2023, the company achieved operating income of 24.519 billion yuan, an increase of 14% over the previous year; net profit of 1,896 billion yuan, an increase of 60% over the previous year. Effective January 1, 2023, the currency of presentation of the Company's consolidated financial statements was changed from HKD to RMB. 2) The increase in revenue from water treatment services and the consolidation of Beijing Holdings Urban Resources Group from the second half of 2022 have driven the steady growth of the company's revenue. 3) The company's comprehensive gross profit margin in 2023 was 36.7%, down 2.7 pct from the same period last year, mainly due to the combined use of Beijing Holdings Urban Resources.
The operation is steady, and the sewage and water supply business volume has increased and prices have risen. 1) In terms of production capacity: By the end of 2023, the company had a total water treatment capacity of 43.96 million tons/day. The production capacity for sewage, water supply, reclaimed water, and sea desalination was 2486, 1433, 447, and 300,000 tons/day, respectively; of these, the production capacity of sewage, water supply, reclaimed water, and seawater desalination was 1953, 1119, 2.54, and 300,000 tons/day, respectively. 2) In terms of disposal volume and price: The company disposed of 6.30 billion tons of sewage and reclaimed water in 2023; the average sewage treatment contract price in mainland China was 1.49 yuan/ton, 1.47 yuan/ton in 2022; the water supply volume was 2.31 billion tons, an increase of 4% year on year; the actual average contract price for water supply in mainland China was 2.15 yuan/ton, 2.13 yuan/ton in 2022; the operation was steady, and the increase in volume and price was in line with expectations. 3) In terms of capital expenditure: The company's actual capital expenditure was 6.83 billion yuan in 2023 and 6.30 billion yuan in 2022. The slight recovery in capital expenditure was mainly due to the full recovery from the impact of the epidemic in water plant construction in 2022. It is expected that the downward trend in the company's capital expenditure will not change in the future.
High percentage dividend, stable dividend payout. The company's total dividend in 2023 reached 1,420 billion yuan, up 1.68% year on year, and the cash dividend ratio was 75%. From 2021 to 2023, the company paid a steady annual dividend of around HK$1.58 billion for three consecutive years, and high dividend expectations are stable. The 2023 static dividend rate reached 8.83%, and the characteristics of high dividends stand out.
Risk warning: The operation of the commissioning project falls short of expectations, the commissioning progress of the project in progress falls short of expectations, the expansion of new projects falls short of expectations, the adjustment of water prices falls short of expectations, dividends fall short of expectations, etc.