Net profit to the mother yoy +25% in 2023, raised the profit forecast but lowered the target price, Hanlan Environment released an annual report. In 2023, it achieved revenue of 12.5 billion yuan (yoy -2.6%), net profit to the mother of 1.43 billion yuan (yoy +25%), deducting non-net profit of 1.41 billion yuan (yoy +27%). Among them, Q4 achieved revenue of 3.6 billion yuan (yoy +9.6%) and net profit of 260 million yuan (yoy -4.1%) to mother. Referring to the progress and structural changes of the project under construction, the solid waste treatment revenue was lowered and the gross profit margin of solid waste treatment was raised; the gross profit margin of the energy business was improved; and the profit forecast was raised. We expect the company's EPS for 2024-26 to be 1.99/2.18/2.38 yuan (previous value 1.98/2.12/- yuan), respectively. Comparable companies consistently expected the average PE value to be 14 times. Considering that the company's net profit CAGR in 2024-25 was lower than the comparable average, the company was given 12 times PE in 24, with a target price of 23.88 yuan (previous value of 27 yuan), maintaining a “buy” rating.
New project contribution+improvement in operation, net profit from solid waste yoy +9.3%
In '23, the company's waste incineration power generation capacity was put into operation between 1,750 tons/day and 29,800 tons/day. As of the end of 24Q1, the total scale of the company's waste-to-energy generation was 35,750 tons/day (excluding shareholding projects), of which non-competitive projects accounted for 73%; 1,450/750/3,750 tons/day under construction/prevention/unbuilt, of which 1,450/750 tons/day is planned to be put into operation in 24/26 (according to the company's 23 annual report). Solid waste treatment revenue yoy -6.5% in '23, but net profit yoy +9.3% to 990 million yuan, net interest rate 15.3%; of these, engineering and equipment revenue yoy -52%, and net interest rate was only 6.2%; waste incineration revenue yoy +16%, net profit yoy +11% to 770 million yuan; sanitation revenue yoy +25%, increasing the scale of “big city administration”.
The energy business turned losses into profits as scheduled, and water supply and drainage maintained steady development
1) Energy: Energy business revenue yoy -0.2% in '23, but the sector turned a loss into a profit of 160 million yuan, thanks to an improvement in the price spread of natural gas sales. The company's food waste hydrogen production project was put into operation in '23, with an annual production capacity of 2,200 tons. The company's integrated hydrogen energy layout was initially completed. 2) Water supply: 23 years of water supply yoy -0.4%, revenue yoy +0.2%, water loss rate yoy-0.5pp, continuous strengthening of operation and management capabilities. 3) Drainage: Treatment capacity +8.0% year-on-year, revenue +20%, new production was put into operation in 23, and production capacity is expected to be increased by 50,000 m3/day in 24 (according to the company's 23rd annual report). The company expanded its water treatment business layout with asset-light operation services.
Risk warning: The commissioning of waste incineration projects has fallen short of expectations; the financing trend has been drastically reversed; and the rise in natural gas prices has exceeded expectations.