Core views:
Annual results were +25% year-on-year, with improved gas profits and steady emissions of solid waste. According to the performance report:
In 2023, the company achieved revenue of 12.541 billion yuan (-2.59% YoY), net profit to mother of 1,430 million yuan (+25.23% YoY); net profit to mother of 264 million yuan (-5.38% YoY) in the fourth quarter.
The decline in revenue was mainly due to a year-on-year decrease of 1.2 billion yuan in the solid waste engineering business, which was accompanied by a steady increase in operating profits as a number of new solid waste projects were put into operation. Furthermore, along with net price and gas source development, gas business profits were achieved throughout the year (including Q1-3 net profit of 140 million yuan), which significantly turned losses into profits compared with losses of 65 million yuan in 2022.
Cash flow is showing a positive trend under investment contraction, and dividends are expected to continue to rise. According to the three-quarter report: Excluding the impact of Accounting Standard No. 14, the company's net operating cash flow for 23Q1-3 reached 1,776 billion yuan (+1,070 billion yuan year over year). The net outflow of 23Q1-3 investment cash flow reached $1,430 billion, and free cash flow has been corrected. With the completion of projects under construction, capital expenditure will continue to narrow (estimated annual expenditure of more than 2 billion yuan), and there is a clear positive trend in cash flow. According to the announcement “Notice on Receiving Shareholders' Proposals on the Company's 2023 Profit Distribution Plan”, the company plans to distribute a cash dividend amount (tax included) of no less than 100% per share to all shareholders compared to 2022, that is, no less than 0.44 yuan (tax included) per share. Based on the total share capital at the end of 2023, the proposed dividend is 359 million yuan, and the dividend rate is about 2.64% based on the latest total market value.
Large solid waste expansion ensures long-term growth, and REITs continue to promote mergers and acquisitions. According to the three-quarter report, as of 23Q3, solid waste production capacity was 29,800 tons/day; production capacity under construction+preparation + unbuilt production capacity was 5,950 tons/day; development of food waste, industrial hazardous waste, etc. guarantees long-term growth. As the company's REITs project is being promoted, the healthy expansion of “investment-operation-REITs-reinvestment” is being formed at an accelerated pace, helping the expansion of mergers and acquisitions.
Profit forecasting and investment advice. The estimated net profit for 23-25 will be 1,430/15.78/1,708 billion yuan, corresponding to PE 10/9/8 times. The reference industry gave a valuation of 15xPE in 2024, with a reasonable value of 29.03 yuan/share, maintaining a “buy” rating.
Risk warning. REITs are driving low expectations; orders are getting low expectations; gas prices have risen sharply, etc.