Introduction to this report:
Solid waste operations grew steadily and the profitability of the energy business recovered, driving the company's profit to increase 25% year-on-year in 2023.
The company's operating cash flow improved significantly in 2023, and planned dividends increased steadily.
Key points of investment:
Maintain an “Overweight” rating. We maintain the company's projected net profit for 2024-2025 and increase 2026 at 1,550 yuan, 16.89 billion yuan, and 1,779 billion yuan, respectively, and corresponding EPS of 1.90, 2.07, and 2.18 yuan.
The company's large solid waste business is developing steadily, the gas business has been significantly restored, capital expenditure has been reduced, cash flow has improved, planned dividends have continued to increase steadily, maintaining the target price of 33.49 yuan, and maintaining the “increase in holdings” rating.
The operation is steady and in line with expectations. In 2023, the company achieved revenue of 12.541 billion yuan, a year-on-year decrease of 3%; attributable net profit of 1,430 billion yuan, a year-on-year increase of 25%; and net profit without non-vested income of 1,407 billion yuan, an increase of 27% over the previous year. Profit recovery in the gas business and steady development of the solid waste business led to rapid profit growth.
Solid waste operations have grown steadily, and gross margins in the energy business have been fixed. 1) In terms of solid waste, the company has invested 29,800 tons/day, and the scale of the project under construction is 1,450 tons/day. Waste incineration operations achieved revenue of 3.268 billion yuan, up 16% year on year; realized net profit of 766 million yuan, up 76 million yuan year on year, up 11% year on year.
2) In terms of energy business, the energy business achieved net profit of 157 million yuan in 2023, an increase of about 222 million yuan over the same period last year. The gross profit margin of the energy business was 9.76%, up 8.31pct year on year. Gas procurement prices fell year on year, sales price differences increased year on year, and profitability continued to recover.
Cash flow has improved dramatically, and planned dividends have increased steadily. 1) The net cash flow from the company's operating activities in 2023 was 2,482 billion yuan, a sharp increase of 2,060 billion yuan over the previous year, mainly due to the receipt of 988 million yuan in transfers of accounts receivable from China Southern Holdings. 2) In 2023, the company plans to pay a total cash dividend of 391 million yuan, increasing the dividend rate to 27.38%, corresponding to a dividend rate of 2.75%. 3) The company also plans to increase its cash dividend per share by no less than 10% year-on-year in 2024-2026. After the peak capital expenditure period for leading waste incineration companies, the dividend increase logic began to be gradually implemented, and the increase in dividends drove a revaluation of value.
Risk warning: Fluctuations in natural gas prices, changes in industry subsidy policies, project progress below expectations, etc.