Incident: In 2023, the company achieved operating income of 2,907 billion yuan, a year-on-year decrease of 18.92%; net profit to mother was 218 million yuan, a decrease of 43.36%, after deducting net profit of 141 million yuan, a year-on-year decrease of 51.47%, and the weighted average return on net assets fell 6.82 pct to 9.96% year on year.
Revenue from sanitation equipment & construction machinery declined, compounded by impairment of accounts receivable, putting pressure on performance. In 2023, 1) Sanitation equipment: Revenue decreased by 32.91% to 1,197 billion yuan, and gross margin decreased by 3.72 pcts to 28.62%. 2) Sanitation services: Revenue of 699 million yuan, down 0.31%; gross margin decreased by 5.93 pct to 23.81%. 3) Construction machinery: Revenue of 818 million yuan, a year-on-year decrease of 15.82%, and gross margin increased 6.50 pcts to 29.76%. The company accrued credit impairment losses of 111 million yuan, an increase of 148% over the same period.
Net operating cash flow improved significantly in 2023, and the dividend ratio reached 92%. The company's net operating cash flow in 2023 was $36 million, compared to -90 million yuan in the same period last year. In 2023, the company's dividend per share (before tax) was 0.38 yuan, the same as the previous year, with a dividend ratio of 92.01%.
Competition in the field of new energy is intensifying, and we expect the company's market share to pick up. Financial payments were under pressure in 2023, environmental service companies were tight on capital, and enthusiasm for sanitation equipment procurement declined. According to China Automobile data terminal retail statistics, China insured 77,183 sanitation vehicles in 2023 (-6.1% year on year), of which 6,227 new energy sanitation vehicles were insured (+27.7%), and the penetration rate of new energy sources was 8.1% (+2.1pct year on year). Competition in the industry has intensified, and local sanitation vehicle companies and new sanitation vehicle builders have entered the new energy sanitation industry. In 2023, the number of NEV sales brands reached 112, a year-on-year increase of 45.5%, and the concentration of the top ten dropped by 5.0 pct. In 2023, the company insured 2,607 sanitation vehicles (-3 3.7% year on year), of which 1,150 new energy sanitation vehicles were insured (-17.9% year over year), with a market share of 18.5% (-10.2 pct year on year). With the implementation of the comprehensive electrification pilot in the public sector and the implementation of the action plan for continuous air quality improvement, the release of new energy equipment is expected to accelerate, and the company's market share is expected to rise again.
At the end of 2023, the annual amount of active projects was 700 million yuan to strictly control risks and optimize the project structure. In 2023, the subsidiary Aolande (mainly engaged in sanitation services) had revenue of 668 million yuan, a decrease of 1.96%, and net profit of 11 million yuan, a decrease of 88.11%, mainly due to impairment of receivables. According to environmental data, the contract amount for the national sanitation market-based tender opening project in 2023 was 2233 billion yuan, with an annualized amount of 74.4 billion yuan, an increase of 7.5% over the same period. The company attached importance to risk prevention, carried out strategic project structure optimization, and withdrew from projects with high repayment pressure. At the end of 2023, the company's sanitation service orders were 700 million yuan per year, a decrease of 15%.
The economy of pure electric mining vehicles is outstanding, and the company maintains the competitive advantage of being the number one brand in the industry. Demand for mining vehicles weakened in 2023 due to cooling real estate, insufficient infrastructure impetus, and declining profits in the cement industry. Compared with traditional fuel vehicles, the energy consumption cost of pure electric mining vehicles can be reduced by more than 70% in heavy duty downhill transportation scenarios, and demand is yet to be released. In 2023, the company maintained its competitive advantage as the number one brand in the field of new energy mining vehicles. The company's pure electric mining vehicles have operated in 28 provinces and over 100 mining areas; overseas, it has already launched projects in Thailand, Indonesia, the United Arab Emirates, Chile, etc.
Profit forecast and investment rating: Considering that 2024-2025 is a critical period for implementing policies such as comprehensive electrification pilots, new energy sanitation equipment is expected to accelerate, and market share is expected to pick up as the company's sales strategy adjusts. We lowered the company's net profit to the mother in 2024-2025 from 503/616 million yuan to 2.73 billion yuan. The estimated net profit to the mother in 2026 is 409 million yuan. The current market value corresponds to the 2024-2026 PE is 18/15/12 times, maintaining the “buy” rating.
Risk warning: The penetration rate of new energy sources falls short of expectations, market competition intensifies, and accounts receivable periods are extended.