Description of the event
In 2023, Everbright Environmental achieved operating income of HK$32.09 billion, a year-on-year decrease of 14.0%; EBITDA of HK$12.83 billion, which was basically the same; and net profit to mother of HK$4.43 billion, a decrease of 3.8% year-on-year. The year-end 2023 dividend is HK8 cents per share, and the full year dividend is HK22 cents per share, with a full year dividend payout ratio of 30.5%.
Incident comments
Continued optimization of the revenue structure led to an increase in gross margin. 1) In terms of revenue by business: Environmental Energy, Environmental Water, and Green Environmental Protection achieved operating income of HK$173.6/67.42 billion, respectively, accounting for 54.1%/20.9%/23.1% of total revenue; 2) By type of revenue: In 2023, the company achieved operating revenue of HK$18.76 billion, an increase of 9.6 pct to 58.5%, and achieved construction revenue of HK$7.50 billion, accounting for a decrease of 11.9 pct to 23.4%, and the comprehensive gross margin increased 4.5 pct to 43.0% . As the company's investment slows down and stocks are put into operation, the share of operating revenue still has a lot of room to increase in the future. 3) Looking at gross margin: Construction revenue was mainly contributed by green energy. Due to declining capital expenditure, green energy construction revenue decreased by 52.9% year on year to HK$4.33 billion in 2023, and the share of green energy operating income (including financial revenue) increased by 16.9 pct to 75.0%, which in turn led to an increase of 7.4 pct to 52.3% in the overall gross margin of environmental energy. In addition, the gross margin of green water and green environmental protection increased by 4.0 pct/0.6 pct to 42.1%/21.5% respectively? Accelerated payment of existing state supplements is expected to improve asset credit conditions. 1) Asset side: As of the end of 2023, the company's accounts receivable increased by 30.5% year-on-year to HK$19.08 billion (the share of revenue increased by 21.2 pcts to 62.3%), and the share of accounts aged 13 months or more increased by 7.9 pcts to 44.8%. GREEN ENVIRONMENTAL estimated asset impairment losses of HK$656 million in 2023 (mainly continuing operating losses due to a sharp drop in volume and price in the hazardous waste market), which hampered performance. However, in March 2024, 16 biomass projects received 1,534 billion yuan in state subsidies, which will improve asset credit conditions to a certain extent; 2) Debt side: the company continues to optimize the financing structure and replace high-interest loans from abroad to drive down loan interest rates. At the end of 2023, the share of RMB loans increased by 17 pct to 87%, and capitalized borrowing costs fell from 3.9% to 4.8% in 2022 to 2.7% to 3.5% in 2023. The company's balance ratio decreased by 1.8 pct to 65.4%. Subsequent capital expenditure is expected to decrease, and the overall balance ratio shows a downward trend.
Combine priorities, improve quality and efficiency, and seek new business growth points. 1) Combining priorities: By the end of 2023, the company had implemented a total of 4 EPCO model projects (1 environmentally friendly energy and 3 environmentally friendly water services). It also undertakes asset-light services overseas in Houjiang, Vietnam, Tanzania, and Abu Dhabi, UAE. Combining priorities is beneficial to increasing gross margin; 2) Fine management: ① Environmental energy strengthens the coordination and integration of garbage sources through the “12 Measures for Waste Growth”. In 2023, garbage disposal volume and feed-in electricity usage increased by 6.79% and 4.72%, respectively, and 3 projects have increased garbage disposal fees. It is expected that the 2024 price adjustment window will improve the profitability of waste incineration projects. ② Environmental Water has 4 photovoltaic power generation facilities put into operation, and 11 sewage treatment plants have raised water prices. The price adjustment range is between 4% and 36%, which is conducive to reducing costs and increasing efficiency of water projects. ③ By the end of 2023, a total of 52 green and environmental protection biomass projects were put into operation. In 2023, it provided 6.16 billion kWh of feed-in electricity (up 2% year on year) and 2.46 million tons of steam supply (same year on year), effectively supplementing cash flow in the heating business.
Profit forecast and valuation: In 2024-2026, the company is expected to achieve revenue of HK$318.01/313.35/HK$30.623 billion, a year-on-year change of -0.90%/-1.46%/-2.27%; net profit to mother of HK$44.82/47.29/4.839 billion, a year-on-year change of 1.19%/5.51%/2.33%. The corresponding PE valuation is 3.91x/3.62x, and the corresponding PB valuation is 0.34x/0.31x/0.28x. The 2023 dividend corresponds to the current dividend rate of 7.24%, maintaining a “buy” rating.
Risk warning
1. Risk of overdue accounts receivable; 2. Risk of receipt falling short of expectations.