Matters:
The company achieved revenue of 2,907 billion yuan in 2023, a year-on-year decrease of 18.92%; net profit to mother of 218 million yuan, a year-on-year decrease of 43.36%; deducted non-net profit of 141 million yuan, a year-on-year decrease of 51.47%; and basic earnings per share of 0.4 yuan. The company plans to distribute a cash dividend of 3.8 yuan (tax included) for every 10 shares.
Commentary:
Revenue growth is under pressure, and depreciation is dragging down performance. By sector, in 2023, the company's sanitation equipment/construction machinery/sanitation service sector achieved revenue of 11.97/818/699 billion yuan respectively, or -32.91%/-15.82%/-0.31% year-on-year respectively, all showing a downward trend. In terms of gross margin, gross margin of sanitation equipment/sanitation services declined by 3.72 pct/5.93 pct to 28.62%/23.81%, respectively, and gross margin of construction machinery rose 6.5 pct to 29.76%, respectively. Although the absolute value of the company's net operating cash flow in 2023 increased by 126 million yuan to achieve a correction, it has not returned to the level of 2021. The corresponding company's accounts receivable increased 13.77% year-on-year to 1,136 million yuan. Untimely repayment caused the company to accrue credit impairment losses of 111 million yuan in 2023, an increase of 66.19 million yuan over 2022, which dragged down the company's performance during the reporting period.
Appropriate control of expenses. In 2023, the company's sales/management/ R&D/finance expenses rates were 10.19%/2.81%/5.03%/-0.77%, respectively. Compared with +0.01/-0.24/+0.57/-0.05pct in 2022, the company's expense ratio did not change much from 2022, which had no more negative impact on performance.
Competition in the industry intensified, and the company's market share of new energy sanitation equipment declined. In 2023, domestic demand for new energy sanitation gradually showed a trend of “blooming everywhere”; among them, local sanitation vehicle companies and new sanitation vehicle builders entered the NEV industry, achieving sales of 112 brands, a year-on-year increase of 45.5%. The concentration of the top ten decreased by 5 pcts year-on-year, and competition in the NEV market further intensified. In 2023, the number of new energy sanitation vehicles covered by the company was 1,150, with a market share of 18.5%, down 250 units and 10.21pct from 2022.
The high dividend policy will not change. The company's total cash dividend in 2023 was about 203 million yuan, and the dividend payment rate was as high as 92.83%, corresponding to the current price (2024.4.2 closing price) dividend rate of 4.23%. Over the past three years, the company has consistently implemented a high dividend policy based on the principle of rewarding shareholders. The dividend rates for 2021-2023 were 47.48%/52.82%/92.83%, respectively.
Investment advice: Give it a “recommended” rating, with a target price of 9.65 yuan in 2024. Due to fierce competition in the sanitation electric vehicle market and sanitation service payments slightly lower than expected, we lowered the company's profit forecast for 2024-2025 and added the 2026 forecast: the company's net profit from 2024 to 2026 is expected to be 327 million yuan, 388 million yuan (previous values were 472 million yuan, 554 million yuan), and 444 million yuan, respectively, corresponding to 15 times, 12 times and 11 times PE, respectively. The segmentation method is used for valuation. For the sanitation equipment business, we selected Yingfeng Environmental and Fulongma as comparable companies. Combined with the company's market position and revenue structure, the business should have enjoyed a certain valuation premium, so the 2024 target PE was given 20 times; for the sanitation service business, 10 times PE for China's Tianying and Yuhetian; for the construction machinery part, we selected Sany Heavy Industries and others as comparable companies, giving 15 times PE. Assuming that the net profit share of each business segment is consistent with gross profit, the company was given a target price of 9.65 yuan for 2024.
Risk warning: Policy progress falls short of expectations, market competition intensifies, and accounts receivable payments fall short of expectations.