Revenue increased in 2023, and profits were under pressure in the short term. The company achieved revenue of 10.58 billion yuan in 2023, +20.58% year-on-year, and net profit of 50 billion yuan to mother, -27.1% year-on-year. By business, in 2023, the company's solid waste and hazardous waste recycling sector had total revenue of 6.47 billion yuan, +59.5%; the total revenue of the environmental protection operation service sector was 1.63 billion yuan, +11.7% year over year; and environmental engineering revenue was 2.48 billion yuan, -23.8% year over year. The company's revenue grew steadily in 2023, mainly due to the contribution of new production projects in the resource sector. Among them, Jiangxi Xinke started production lines one after another at the end of March, contributing 2,745 billion yuan in revenue during the reporting period; compared with the same period last year, the Jingyuan High Energy Phase II project had a high production capacity load and a significant increase in revenue; profits declined, mainly due to the increase in revenue scale of Jiangxi Xinke and Jingyuan High Energy.
2024Q1 achieved revenue of 3.13 billion yuan, +80.1% year over year, and net profit to mother of 190 million yuan, -6.0% year over year. The sharp increase in revenue was mainly due to Jiangxi Xinke not officially producing in the same period last year.
The gross margin has declined, and the ability to control expenses is stable. The company's gross margin in 2023 was 18.2%, down 5.3 pcts year on year. Among them, the gross margin of the solid waste and hazardous waste resource utilization sector, which accounts for a relatively large revenue share, was 8.3%, down 5.7 pcts year on year. Mainly, the Jiangxi Xinke Deep Processing Project has the characteristics of large output value and low gross margin level. Furthermore, some projects are in a phase where production capacity is climbing. The company's 2023 sales expense ratio was 1.4% (-0.03pct year on year), the management expense ratio was 4.8% (-0.03pct year on year), the financial expense ratio was 4.1% (+0.3pct year on year), and the total three-fee ratio was 10.3% (+0.2pct year on year), and the overall cost control was reasonable. The company's net operating cash flow in 2023 - 950 million yuan, down 5.1 billion yuan from the previous year. The main reason is that inventory at the end of the reporting period increased by 2,328 million yuan over the previous period. Jiangxi Xinke gradually put into operation at the end of March 2023, increasing raw materials by 455 million yuan in electrolyzer bottom paving and normal production materials. Furthermore, with the extension of the production chain, products increased by 1.919 billion yuan. With the gradual release of Jiangxi Xinke's production capacity, the company's operating cash flow gradually improved in the third quarter.
As the production capacity of projects in the resource sector climbs and the operation stabilizes, performance is expected to be released at an accelerated pace. In 2023, Jiangxi Xinke is in the construction and operation phase, and various production lines will be gradually completed and put into operation starting in March. As of the disclosure date of the report, the project has been fully put into operation. It now has an annual production capacity of about 100,000 tons of copper cathode, 2,000 tons of tin ingots, 1,500 tons of lead ingots, 3 tons of gold ingots, 120 tons of silver ingots, and 10,000 tons of nickel sulfate. With the full commissioning of the Jiangxi Xinke project, the company has extended the initial resource processing to deep processing and utilization of copper-containing industrial waste, forming a closed loop in a comprehensive resource recycling industry chain that mainly recycles copper metals and takes into account other metals such as nickel, tin, gold, silver, platinum, palladium, etc., and the performance is expected to be released at an accelerated pace.
Multiple projects create a closed loop of the three major industrial chains, and the advantages of integration are prominent. 1) During the reporting period, Chongqing Yaohui and Gaoneng Pengfu carried out technical transformation, and Zhuhai Xinhong accelerated project construction, which is expected to be put into operation within 2024. All of the above projects can provide raw materials for copper-containing alloys for Jiangxi Xinke to form upstream and downstream industrial collaboration. 2) The Jingyuan High Energy Project itself has achieved integrated production of lead-containing industrial waste from initial resource processing to deep processing and utilization, forming a closed loop in a comprehensive resource recycling industry chain with lead metals as the main focus, taking into account other metals such as copper, bismuth, antimony, gold, and silver. 3) Jinchang High Energy has accelerated the construction of the second phase of the Advanced Resource Recycling Project. In the Jinchang region of Gansu Province, companies such as Gaoneng Zhongye, Xinshengyuan, and Zhengyu High Energy have established a closed loop in the resource utilization industry, which mainly contains nickel. The synergy between the companies is obvious.
Profit forecast: The company is a leading enterprise in the field of solid waste disposal. It has obvious advantages in the metal-rich industrial chain and technology. With the implementation of multiple projects, the performance is expected to grow rapidly. Considering that the company's production capacity in the resource sector fell short of expectations in 2023, the company is expected to achieve net profit of 9.0/12.3/1.46 billion yuan in 2024/2025/2026, corresponding to PE 10.9/8.1/6.8x, maintaining a “buy” rating.
Risk warning: Policy falls short of expectations, risk of raw materials fluctuation, project progress falls short of expectations, etc.