Introduction to this report:
Results in 2023 slightly exceeded expectations, and profitability continued to improve. As capital expenditure support continues to decline, a positive inflection point in free cash flow will occur in 24 years, and dividends may be expected to rise to a higher level. Currently, the company's dividend ratio is 8.07%.
Summary:
Maintain an increase in holdings rating. We slightly lowered the company's 2024-2025 forecast net profit to 44.67 (-10%), 45.41 (-12%), HK$4.620 billion, and EPS of HK$0.73, 0.74, and 0.75, respectively. We reaffirm that the company's free cash flow inflection point will occur in 2024, dividends may be expected to rise to a higher level, and industry leaders are expected to face revaluation.
The 2023 results slightly exceeded expectations. In 2023, the company achieved revenue of HK$32.090 billion, a year-on-year decrease of 14%; attributable net profit of HK$4.429 billion, a year-on-year decrease of 4%. The company's actual performance was higher than Bloomberg's (HK$4.34 billion) and Wande's median expectations (HK$4.01 billion), and slightly exceeded market expectations.
Revenue fell 14% year over year, mainly due to a decrease in new construction projects and a decline in construction revenue.
Steady operation and continuous improvement in profitability. 1) In 2023, the company put into operation 134,000 tons/day for waste incineration, 48.6 million tons of garbage disposal, an increase of 7% over the previous year. The capacity utilization rate was 99%, and the operation was steady; the tonnage was 458 degrees, the plant's electricity consumption rate was 15%, and the operating efficiency was high. 2) In 2023, the company's construction revenue fell 42% year on year, operating revenue increased 2% year on year, and operating and financial revenue accounted for 76%. The share of operations continued to rise, driving the company's comprehensive gross margin of 4.55pct to 43.04% year-on-year in 2023, reaching a high of the past eight years. The net profit margin increased 1.69 pct to 16.30% year on year, financial expenses of HK$3,528 billion eroded profits, and the balance ratio decreased 1.79 pct to 65.37% year on year. It is expected that with continuous optimization of financing structures and costs, there is still room for improvement in profitability. 3) Affected by the sharp decline in construction revenue, the company's profit fell 32% year on year in 2022, and the profit decline narrowed in 2023. It is expected that the impact of the decline in construction revenue in 2024 on profit will be further reduced.
Free cash flow inflection points are expected to occur in 2024, and dividends are expected to increase. 1) By the end of 2023, the company burned 8,400 tons under construction, and added 3,700 tons in 2023. There are few new projects under construction and new projects. Capital expenditure is expected to be further reduced, and free cash flow can be expected in 2024. 2) In March 2024, Everbright's green environmental protection announcement received 1,377 billion yuan of national subsidies, and the national supplement recycling showed an optimistic signal. 3) The company's total cash dividend in 2023 was 1,351 billion yuan, with a dividend payment rate of 30.51%, and steady dividends, which is basically the same as the past three years. The dividend rate is expected to rise to a higher level with positive free cash flow. Currently, the company's dividend ratio is TTM 8.07%, and the characteristics of high dividends are obvious.
Risk warning: changes in national supplement policies, project operation, dividends falling short of expectations, etc.