Incident: The company recently released its 2023 annual report. In 2023, the company achieved operating income of 1,753 million yuan, -3.61%; realized net profit attributable to mother/net profit of 1.779/167 million yuan, respectively, -26.26%/-28.08% year-on-year, respectively; and net cash flow from operating activities was 113 million yuan, -68.90% year-on-year.
Due to the decline in raw firewood prices, the 2023 results were under pressure, and the fourth quarter performance growth rate showed a recovery trend.
The company's net profit in 2023 was -26.26% year-on-year. The decline in performance was mainly due to external economic fluctuations and the impact of anti-avoidance and anti-dumping investigations carried out by the European Union on Chinese biodiesel products, and domestic biodiesel export prices fell. By business, in 2023, the company's organic solid waste treatment/domestic waste treatment/environmental engineering and others achieved revenue of 1,485/2.02/60 billion yuan, respectively, -2.67%/-1.29%/-27.06%; gross margin was 23.23%/45.79%/29.20%, respectively, +1.48pct/-3.27pct/-2.28pct, respectively. On a quarterly basis, 2023Q4 achieved operating income of 471 million yuan, +14.7% year-on-year, and achieved net profit of 30 million yuan, or +46.85% year-on-year. The growth rate of the company's net profit to mother corrected in 2023Q4, showing an overall recovery trend.
Orders for biomass energy regeneration projects are progressing steadily, and new directions for bioaviation fuel are being actively laid out. The company has been deeply involved in the biomass recycling business for many years. Currently, there are 34 biomass recycling center projects, 21 of which have been put into operation, and has 5 projects with a daily treatment scale of more than 1,000 tons.
New orders continued to be obtained and promoted in 2023, and 1 BOT order was signed throughout the year, with a total investment amount of 1,669 million yuan; the Beijing Tongzhou Biomass Resource Regeneration Center project is currently under construction. In 2023, an investment amount of 78 million yuan was completed, revenue was 74 million yuan, and the unfinished investment amount was 1,591 billion yuan. At the same time, the company is actively expanding its bioenergy business. The raw firewood production capacity of the Guangzhou Biomass Resource Regeneration Center project has increased from 100,000 tons/year to 150,000 tons/year. Facing downward pressure on raw firewood market prices, the company is planning to build new or merger bio-fuel projects in Guangdong, Shandong, Tianjin, etc., and will have HVO and SAF production and supply capabilities in the future.
Actively developing the synthetic biointelligence industry, hMOS products are expected to be launched in 2025. Zhuhai Langjian, a wholly-owned subsidiary of the company, plans to produce hMOS series products. Currently, construction of the first phase of the project with an annual output of 260 tons has started and is expected to be put into operation in the second half of 2024; the second phase of the project with an annual output of 740 tons is expected to be put into operation in 2026, and the production capacity will reach 1,000 tons/year at that time. The first phase of the project will mainly be used to produce major product sequences such as LNT, LnNT, 2'FL, and 3-FL, and will become the first LNT production line in China. It is expected that HMOS products will be officially launched on the market in 2025.
Profit forecast: Maintain the company's “gain” rating. We expect the company to achieve operating income of 18.89/20.52/ 22.28 billion yuan in 2024-2026, and net profit to mother of 210/2.49/298 million yuan, corresponding PE of 17.64x/14.90x/12.42x.
Risk warning: Changes in the macroeconomic situation at home and abroad have exceeded expectations, the implementation of fund-raising projects has fallen short of expectations, biodiesel price spreads fluctuate, and profit forecasts and valuation models fall short of expectations