Adhering to the asset-light transformation strategy, the 2023 dividend payout ratio reached 74.9%
Beijing Holdings Water announced its 2023 results on March 26: For the first time, the company used RMB statements, with revenue up 14.1% year on year to 24.52 billion yuan; net profit to mother increased 60.5% year over year to 1.90 billion yuan, mainly the first time that Beijing Holdings Urban Resources had annual results combined. Considering that the company adheres to an asset-light transformation strategy and the amount of water added is slowing down every year, we expect the company's net profit to be 19.97/23.11/2,619 billion yuan from 2024 to 2026 (previous value: HK$26.33/31.98/ 100 million, converted to RMB 23.89/29.02 billion), corresponding to EPS of 0.20/0.23/0.26 yuan. Referring to the company's five-year historical PE average value of 8x, the target PE for 11x2024 is mainly because we believe that asset-light transformation will help improve the company's cash flow and long-term value, corresponding to the target price of HK$2.42. Maintain a “buy” rating.
Revenue from the water treatment service business achieved year-on-year growth. The gross margin was temporarily under pressure. In 2023, the company's sewage and reclaimed water treatment service business revenue increased 2% year over year to 8.643 billion yuan. Among them, China/overseas revenue was +2%/+5% year over year, but gross margin was -2/-1 percentage point year over year to 55%/19%. Revenue from the water supply service business increased 12% year over year to RMB 2,979 million, with China/overseas revenue +12%/+13% year over year, but gross margin was -3/-3 percentage points to 45%/29% year over year. The decline in gross margin of the water treatment business is mainly due to rising electricity costs/rising overseas chemical costs. The year-on-year increase in the company's revenue in 2023 was mainly due to the integration of urban resource services with annual revenue of 5,058 billion yuan. In addition, the company's revenue for water treatment and construction services increased 3% year on year. Looking at the breakdown of the construction service business, in 2023 BOT contract water plant revenue was +14% year over year, and comprehensive management project construction service revenue was -33% year over year.
Asset-light transformation plans remain unchanged, with a dividend payout rate of 74.9% in 2023
By the end of 2023, Beijing Water had a daily design capacity of 43.96 million tons/day, adding 1.55 million tons/day of design capacity throughout the year. The amount of new contracted water was lower than the historical average. It was mainly due to the company actively controlling the scale of investment in asset-heavy projects. Considering that the water treatment industry is gradually entering a mature period, the water supply rate/sewage treatment rate has reached a high level, and the number of new water plants continues to decline. In the future, the company will continue to adhere to the goal of asset-light transformation, further improve the management level of existing water plants, reduce costs and increase efficiency. Furthermore, the company maintains an active dividend policy, with a dividend payout ratio of 74.9% in 2023, and a dividend ratio of 8.8% corresponding to the closing price on March 26.
The target price is HK$2.42, maintaining the “buy” rating
We expect the company to have a net profit of 19.97/23.11/2,619 billion from 2024 to 2026, giving the company 11 times the target PE for 2024, and the target price of HK$2.42. Maintain a “buy” rating.
Risk warning: The project's climbing progress falls short of our expectations, and the asset-light transformation is slower than our current expectations.