Core views:
Revenue grew steadily, and performance was affected by factors such as hedging losses and intense competition in the industry. In 2023, the company achieved revenue of 18.95 billion yuan (+12.9% YoY) and net profit to mother of 1,026 billion yuan (-30.1% YoY). Affected by intense market competition and shrinking raw material markets, etc., the company's gross profit margin and net profit margin decreased by 4.4 and 3.3 pct year-on-year to 13.0% and 5.4%. Operating cash flow of $1.28 billion in 2023 (+209% YoY) was mainly due to increased repayments and increased net hedging margin income and expenditure. 2024Q1 achieved revenue of 4.45 billion yuan (-4% YoY) and net profit of 311 million yuan (YoY -37.1%), of which loss of -78.88 million yuan (130 million yuan in the same period last year) was due to hedging investment income losses. Furthermore, the company has now repurchased 33.41 million shares (0.64% of the total share capital), with a total amount of 110 million yuan, to be used for employee stock ownership plans or equity incentives.
The hazardous waste recycling business is steady, and we expect production capacity under construction to be put into operation. In 2023, the hazardous waste business achieved revenue of 18 billion yuan (+13.5% year over year), gross profit of 2.07 billion yuan, and sales of 217,700 tons of recyclable products such as copper and gold (+18.4% year over year). The company's hazardous waste recycling business covers the entire industry chain from hazardous waste to alloys to recycled metals. It can purify more than 10 types of recycled metals. It is expected that projects such as Taixing under construction will be put into operation in an orderly manner. The capacity utilization rate of stock projects will continue to increase, and it is also expected to benefit from the increase in metal prices.
Nuclear power units are being approved at an accelerated pace, and equipment sales are expected to increase. In the context of dual carbon, the “14th Five-Year” Modern Energy System Plan re-introduces the active development of nuclear power, requiring the installed capacity of nuclear power to reach 70 GW by 2025. The National Standing Committee approved 20 nuclear power units in 2022/23. In March 2023, the company signed a 1,026 million yuan control rod drive equipment contract, and the Zhangzhou Nuclear Power Unit 2 control rod drive mechanism supplied by the company in June has been fully delivered. New nuclear power business orders totaling 1.23 billion yuan were signed in 2023. Along with nuclear power approval, the company's nuclear power equipment sales are expected to grow rapidly.
Profit forecast and investment advice: The company's net profit due to mother in 2024-26 is estimated to be 12.06/13.83/1,536 billion yuan, or 14.5/12.7/11.4 times the PE corresponding to the latest closing price. Referring to comparable companies, the company relied on technical advantages and front-end integration to carry out in-depth recycling of hazardous waste, giving 18 times PE in 2024, a reasonable value of 4.14 yuan/share, and maintaining a “buy” rating.
Risk warning. Metal price fluctuation risk; policy risk; futures hedging risk, etc.