Description of the event

Weiming Environmental Protection achieved operating income of 6.025 billion yuan in 2023, an increase of 34.7% over the previous year, and net profit to mother of 2,048 billion yuan, an increase of 23.1% over the previous year. Among them, Q4 achieved revenue of 1,403 billion yuan in a single quarter, up 23.0% year on year, and net profit to mother of 478 million yuan, up 17.5% year on year.

Incident comments

Operating revenue grew steadily, and engineering equipment contributed a major increase. Looking at the revenue structure in 2023:1) Revenue from environmental protection and new materials and equipment was 2,917 billion yuan, an increase of 56.5% over the previous year, accounting for about 48.4%, which was the main increase. The peak period of waste incineration operation has passed, and new materials and equipment have begun to contribute revenue, bringing new impetus to the company's growth. A total of 3,545 billion yuan of new equipment orders were signed in 2023 (the total amount of sales contracts for environmentally friendly power generation projects and new materials and equipment was 478/3,067 million yuan, respectively).

2) Project operations grew steadily, achieving revenue of 3,076 billion yuan, a year-on-year increase of 19.0%. In 2022 and 2023, the company launched new waste incineration projects of 7,850/5,000 tons/day, respectively, leading to a steady increase in garbage disposal volume. In 2023, the holding garbage disposal project completed a total of 11.763 million tons of garbage storage, an increase of 26.27% over the previous year, and completed a feed-in electricity capacity of 3.158 billion kilowatts, an increase of 21.10% over the previous year.

The increase in net profit attributable to mother was less than the increase in revenue, mainly due to credit impairment charges, and accounts receivable increased due to new projects put into operation.

When new projects are put into operation after 2022, the company is guided by the principle of prudence. The impact on accounting confirmation is on projects that have not been implemented in the bidding results and the failure to confirm part of the subsidy revenue. In addition, accrued credit impairment of $62 million in 2023 (rushing back of $102 million in 2022) also hampered performance. The cost rate decreased by 1.76 pct to 9.86% during the period, with the financial expense ratio falling 1.29 pct to 3.95% and the management fee rate falling by 0.01 pct to 4.01%. The company's net operating cash flow was 2,321 billion yuan, up 5.52% year on year. The revenue ratio/net present ratio was 79.4%/111.3% respectively, down 13.77 pct and 19.95 pct year on year. The main reason was that electricity subsidies for new waste power generation projects were dragged down. In addition, sales of new energy equipment were realized, but there was a certain lag in cash flow.

New energy opens the ceiling for growth. 1) Overseas: The company has laid out a 130,000 ton oxygen-rich side-blown high-ice nickel smelting project in Indonesia. Among them, the civil construction of Carman's 40,000 ton Indonesian high-ice nickel project has basically been completed, and the equipment has already begun to be installed. In July 2023, it participated in the Indonesian laterite nickel ore smelting project to produce nickel raw materials for new energy use (20,000 tons of nickel/year, holding 20% of the shares). 2) Domestic: Actively deploy integrated lithium battery material production capacity, and introduce cooperative companies to build a new energy industrial park with production capacity such as lithium salt, lithium battery materials, electrolytes, and recycling at the Wenzhou base. Among them, the civil construction of the new materials project for lithium batteries in Wenzhou has basically been completed, installation of equipment has begun, and about 180 acres of new land have been obtained for the second phase of the project, effectively advancing construction progress. The company laid out a 200,000 ton ternary cathode integration project with Yongqing Technology, Sunwoda and Shengtun Mining. The company, Yongqing Technology, Gelin Mei, Wenzhou High-tech Zone, and Wenzhou Dongtou District each signed a framework agreement to lay out 100,000 tons of power battery and battery waste recycling capacity and 100,000 end-of-life vehicles; invest in the construction of 600,000 tons of nickel-cobalt-manganese sulfate crystal materials and 50,000 tons of ultra-high nickel ternary precursor material base with an annual output of 45,000 tons of high-purity lithium carbonate materials. With Xinzhoubang, Yongqing Technology, and Grimmie invested in the construction of three negative bases with an annual output of 100,000 tons of electrolyte materials, etc., to attract three negative bases, including an annual output of 100,000 tons of graphite and insulating materials Membrane materials industry chain project. The company signed a framework agreement with the Wenzhou Bay New Area Management Committee to invest in the construction of a project with an annual output of 50,000 tons of high-purity electrolytic nickel.

As of the end of 2023, 34,200 tons/day of waste incineration projects were in operation within the scope of the company's consolidated statements, and the scale of the project under construction+preparation was 12,300 tons/day. As waste incineration projects are gradually put into operation in the future, the company's performance will gradually improve, and the new energy materials business is expected to start contributing profits in 2024. The company's net profit for 2024-2025 is estimated to be 2.99 billion yuan and 37.3 yuan respectively, and the corresponding PE is 11.7x and 9.4x, respectively, maintaining a “buy” rating.

Risk warning

1. Risk of project progress falling short of expectations; 2. High ice nickel project profitability is low expected risk.