Net profit to mother -16% YoY, dividend payout ratio 33.0%
Green Dynamics released its annual report. In 2023, it achieved revenue of 3,956 million yuan (yoy -13.39%), net profit to mother of 629 million yuan (yoy -15.51%), and deducted non-net profit of 618 million yuan (yoy -15.66%). Among them, Q4 achieved revenue of 914 million yuan (yoy -23.85%, qoq +1.44%) and net profit to mother of 93.3894 million yuan (yoy -39.41%, qoq -45.65%). The company plans to pay an annual dividend of 0.15 yuan per share, with a dividend ratio of 33.0%, corresponding to a dividend rate of 2.2%. We expect net profit to be RMB 688/760/813 million for 24-26. For Green Power H shares (1330 HK), we gave 8.3 times the predicted PE for 2024, and the corresponding target price was HK$4.49 (previous value: HK$4.40), reaffirming the “buy” rating. For Green Power A shares (601,330 CH), we gave 16.7 times the predicted PE for 2024, and the corresponding target price was RMB 8.18 (previous value: RMB 8.22), reaffirming the “buy” rating.
Revenue and profit declined year-on-year due to a decrease in projects under construction
The number and scale of projects under construction declined, and PPP project construction revenue declined, leading to a year-on-year decline in the company's annual revenue. In terms of revenue composition, solid waste treatment revenue was RMB 3.140 billion, +11.4% year on year, gross margin -4.3pp to 46.4% year on year; PPP project construction revenue was RMB 815 million, -53.5% year on year, and gross margin +0.1pp to 8.2% year on year. We believe that the volume of the company's projects under construction declined in 2024, but solid waste treatment operations are developing steadily, and net profit to the mother is expected to grow.
Garbage disposal/feed-in power/steam supply increased simultaneously. Project construction progressed the company's disposal of 13.45 million tons of garbage in 2023, +18.0% over the same period, achieving 47.3/3.89 billion kilowatts of power generation/feed-in electricity, an increase of 11.5%/11.9% over the previous year. According to our estimates, the annual feed-in capacity was 290 kilowatts. The steam supply business has achieved remarkable development results. A total of 428,600 tons of external steam were supplied throughout the year, an increase of 42% over the previous year. In 2023, the Shuozhou Project, the Huludao Project, the Wuhan Phase II Project, and the Zhangqiu Phase II Project were all officially put into operation after completing the “72+24” hour trial operation, adding 4,600 tons/day of processing capacity.
The Jingxi project was put into operation in January 2024, and the Group's operating processing capacity exceeded 40,000 tons/day. According to the company's announcement on January 16, the company decided to terminate the acquisition of 5 waste-to-energy projects including Lanzhou Fengquan.
The settlement period for national subsidies and garbage disposal fees was extended, and accounts receivable were +30% compared to the same period, and management expenses were +10% to 216 million yuan compared to the same period. Accounts receivable were +30% to 1,973 billion yuan. The main reason was the extension of the settlement cycle for national subsidies and garbage disposal fees, and contract assets were +40% to 407 million yuan compared to the same period, mainly due to the accumulation of electricity costs not included in the national renewable energy subsidy catalogue. Net operating cash flow was -19% year-on-year to $978 million, mainly due to a year-on-year decrease in national reimbursements, and net investment cash flow of -689 million yuan (2022 - $1,111 million).
Risk warning: Waste disposal volume and feed-in electricity are lower than expected, gross margin of solid waste treatment is lower than expected, construction revenue decline exceeds expectations, and impairment of accounts receivable exceeds expectations.