Core views:
Profits have remained stable, but the structure of profits, assets, and cash flow has improved markedly. The company achieved operating income of HK$32.09 billion in 2023 (-14.0% year-on-year, due to a decrease in engineering revenue) and net profit of HK$4.43 billion (-3.8% YoY), exceeding Wind's first phase forecast of HK$4.06 billion). At the same time as profits are stable, we should also see the following highlights: (1) optimization of the revenue structure, accounting for 74.7% (+11.6pct year on year); (2) the debt level declined, the balance ratio was 65.4% (-1.8pct year over year), and the winning interest rate was only 2.57%; (3) stable dividends. The company paid 22 Hong Kong sens/share in 2023, with a dividend ratio of 30.5%, corresponding to the latest market capitalization dividend rate of 7.2%.
It has the largest incineration production capacity in the country, and the stock era and operation are king. In 2023, the company achieved a waste disposal capacity of 486.03 million tons (+6.8% year over year) and 2.718 million tons of food and other remaining garbage (+38.3% year over year), driving the company's solid waste operating revenue of HK$9.24 billion. As of the end of 2023, 148 incineration and operation projects were in operation, with a scale of 490.20 million tons/year; there were only 9 projects under construction, with a scale of 3.06 million tons/year. Looking forward to the future, while the company still has incremental opportunities in county-level, overseas, and M&A markets, a large number of stock operating projects will continue to provide stable cash flow.
Shifting from “high speed” to “high quality”, we look forward to the company's dividend potential. The company has achieved a shift from an investment-driven to a balanced development model — while maintaining steady growth in the main business, it is more noteworthy that the company has achieved good results in inventory business consolidation, debt structure optimization, and accounts receivable repayment. In the first quarter of '24, Everbright Greentech exceeded expectations and settled 1,534 billion yuan in state subsidies and accelerated positive free cash flow. We look forward to the company's potential for future dividends.
Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be HK$44.5/45.05/HK$4.582 billion, corresponding to PE of 4.19/4.15/4.08 times. The free cash flow of waste incineration companies is promising and undervalued but the profit structure continues to improve. It will be given 6 times PE in 2024, corresponding to a reasonable value of HK$4.35 per share, giving it a “buy” rating.
Risk warning. Accounts receivable risk; biomass and hazardous waste business profits fall short of expectations.