Incident: The company achieved operating income of 12.541 billion yuan in 2023, -2.59% year on year; realized net profit to mother of 1,430 billion yuan, +25.23% year over year. It is proposed to distribute $4.8 (tax included) for every 10 shares, with a total dividend of $391 million.
Why did the company's net profit growth rate outperform the revenue growth rate by a large margin?
1. The energy business achieved net profit of 160 million yuan for the year, an increase of 220 million over the previous year. Without considering disruptions in the energy business, the company's net profit to mother increased by about 5% year over year.
2. The solid waste business structure was optimized. Under the sharp contraction of the project, the company's revenue growth was under pressure, but the gross margin of the solid waste sector increased 4.5 pct to 32.8% year-on-year. Specifically, the company's waste incineration power generation capacity utilization rate increased by 9pct to 119% over the same period last year, and stock asset operations are of high quality and efficiency. We are optimistic that the company's operating assets will continue to grow in the future.
Why was the year-on-year growth rate of Q4 net profit to mother negative in a single quarter?
The energy sector contributed about 0.17 million to net profit in the first and fourth quarters (an average quarterly net profit of 47 million in the first three quarters). The profit growth rate of the energy sector narrowed, which was basically the same as the same period last year (22Q4).
2. There were relatively many expenses and impairment charges in the fourth quarter. Management expenses increased by about 50 million over the third quarter. At the same time, the company accrued more credit impairment under the pressure of accounts receivable.
3. Increase in income tax rates. The company's sewage and solid waste projects enjoy three exemptions and three halves of income tax. Projects put into operation in 17/20 ended the halving/tax exemption in 23, respectively. Since the end of the 13th phase to the beginning of the 14th phase is the peak period for the company's solid waste production capacity, we expect the company's income tax rate to rise further in '24.
What do you think of the company's three-year dividend plan (draft, still to be submitted to the shareholders' meeting for consideration)?
The increase in dividend amounts usually comes from two parts: 1. EPS growth; 2. Increase in dividend ratio. Without considering the company's EPS growth in the future, assuming that the company's annual dividend ratio increases by 10%, the expected dividend ratio for 26 years: 27.4% (23 dividend ratio) *1.1*1.1 = 36.5%. Although the short-term dividend ratio is still difficult to compare with other high-dividend companies, the company has a positive attitude of giving back to shareholders.
Investment advice: Maintaining a “buy” rating
We believe that the main influencing factors of the company's 24-year performance are: 1. Project reduction and structural optimization, internal development to reduce costs and increase efficiency, and profit margins are expected to continue to increase. 2. The company expects to settle the repayment of at least 2 billion accounts receivable in 2024, and credit impairment losses on long-standing accounts receivable are expected to be recovered. 3. Under the influence of income tax policies, there may be a slight discount on the transmission of the company's total profit growth rate to the growth rate of net profit due to mother.
We forecast that the company's net profit for 2024-2026 will be 1,571, 17.67, and 2,025 billion yuan, up 9.87%, 12.50%, and 14.59% year-on-year (previous 24-25 forecast values were 16.32 and 18.39, respectively. Due to the rapid contraction of the company's engineering business and income tax growth, we adjusted the profit forecast); diluted EPS was 1.93, 2.17, and 2.48 yuan, respectively. The stock price on April 17 corresponds to PE 9.22, 8.19, and 7.15 times, respectively. Maintain a “buy” rating.
Risk warning: risk of project construction progress falling short of expectations; risk of electricity price subsidies continuing to decline; risk of rising natural gas prices; risk of accounts receivable payments falling short of expectations and the risk of bad debts to be calculated; risk of falling in half with three exemptions, continuing increase in income tax payments, etc.