Description of the event
Xingrong Environmental achieved revenue of 8.087 billion yuan in 2023, up 5.99% year on year; net profit to mother was 1.843 billion yuan, up 13.97% year on year; net profit after deducting non-return to mother was 1.804 billion yuan, up 14.65% year on year. Among them, 2023Q4 achieved revenue of 2.396 billion yuan, a year-on-year decrease of 10.87%; net profit to mother of 0.353 billion yuan, an increase of 45.64% year on year; net profit after deducting non-return to mother of 0.34 billion yuan, an increase of 43.49% year on year.
Incident comments
The introduction of new production capacity led to improved performance, and the sewage treatment and solid waste business contributed to growth momentum. In 2023, the company put into operation projects such as Chengdu No. 7 Reclaimed Water Plant Phase II (0.5 million tons/day), Chengdu Gaoxin West District No. 2 Sewage Treatment Plant (8 tons/day), and Pengzhou Industrial Sewage Treatment Plant Phase I (8 tons/day); in addition, rising solid waste production capacity also increased profits. By business:
Water supply: The water company achieved net profit of 0.758 billion yuan (YOY +3.9%), of which 1.07 billion tons of water were sold (YOY +4.6%), the unit price of water sold was 2.29 yuan/ton (YOY +0.9%), and gross profit of 1.02 yuan/ton (YOY +1.3%).
Sewage: The drainage company achieved net profit of 0.684 billion yuan (YOY +26.5%), including 1.26 billion tons of sewage treatment (YOY +5.5%), sewage treatment unit price 2.40 yuan/ton (YOY +7.8%), and gross profit of sewage treatment 0.96 yuan/ton (YOY +12.5%). It is estimated that due to the increase in treatment prices for some non-central urban projects in central Chengdu, the company's operating efficiency increased.
Solid waste: Renewable energy companies achieved net profit of 0.387 billion yuan (YOY +35.4%), and the high profit increase is estimated mainly due to leachate price adjustments and scale-effect dilution costs, including leachate treatment volume 1.43 million tons (YOY +5.1%), leachate treatment unit price 270 yuan/ton (YOY +22.4%), waste incineration power generation capacity 0.966 billion degrees (YOY +4.2%), and sludge disposal volume 0.69 million tons (YOY +13.1%).
Project: The water supply and drainage network project achieved revenue of 0.95 billion yuan, a year-on-year decrease of 10.7%; the gross profit margin was 22.2%, a year-on-year decrease of 1.45 pcts.
The expense ratio was generally stable during the period, and the cash flow was good. 1) The company's expense ratio for the 2023 period was 11.71%, up 0.42pct year on year, of which the management fee rate was 6.32%, up 0.24pct year on year. 2) Credit impairment losses were 0.092 billion yuan compared to 0.044 billion yuan in the same period last year. 3) Good cash flow. Net cash flow from operating activities was 3.389 billion yuan, up 2.22% year on year; revenue ratio was 97.62%, up 2.29 pct year on year.
Looking ahead to 2024, the company's sewage business price adjustment and implementation, ongoing project commissioning, and offsite expansion will support performance growth. 1) The sewage treatment service fee for Phase V of Chengdu Central City (2024-2026) was raised from 2.15 yuan/ton to 2.63 yuan/ton. The price increase is estimated to have increased sewage treatment business performance by more than 0.127 billion yuan. 2) By the end of 2023, the scale of the company's operating, ongoing and proposed water supply and drainage projects was about 9.3 million tons/day, the scale of the reclaimed water utilization project was about 1.3 million tons/day, the scale of the waste incineration power generation project was 14,400 tons/day, the scale of the sludge disposal project was about 3,400 tons/day, the scale of the garbage leachate treatment project was 8,430 tons/day, and the scale of the food waste disposal project was 2,150 tons/day. Existing production capacity continues to climb, and production capacity under construction will be put into operation one after another. 3) Actively expand the second and third tier market in Chengdu. It is estimated that if integrated into the surrounding area of the capital, it will increase the scale of water supply by about 1.64 million tons/day and increase in sewage treatment by 1.17 million tons/day (there is uncertainty about the effects).
The dividend ratio increased in 2023. The dividend ratio in 2023 is 27.5%, up 6.86pct from 2022, and the dividend rate is 2.48% (2024/04/18). If the urbanization of Chengdu progresses to a certain stage in the future, the company's dividend ratio still has room to increase.
The company's net profit for 2024-2026 is estimated to be 2.14/2.34/2.55 billion yuan, +16.1%/+9.5%/+8.9% year-on-year, corresponding to PE9.6x, 8.7x, and 8.0x, maintaining a “buy” rating.
Risk warning
1. Price and charge risk; 2. Risk that project progress falls short of expectations.