Incident: The company recently released its 2023 annual report and 2024 quarterly report. During the period, it achieved revenue of 8.087 billion yuan, +5.99% year-on-year, and realized net profit of 1,843 billion yuan, or +13.97% year-on-year.
In 2023, the company plans to distribute a cash dividend of 1.7 yuan (tax included) to all shareholders for every 10 shares based on the current total share capital of 2,984 million shares, for a total cash dividend of 507 million yuan, accounting for 27.53% of net profit due to mother in 2023. 2024Q1 achieved revenue of 1,846 billion yuan, +16.70% year-on-year, and realized net profit of 457 million yuan, or +20.55% year-on-year.
In 2023, all businesses operated steadily, and profitability gradually increased. Based on the water and environmental protection market, the company continues to expand its business in Sichuan while deeply developing in Chengdu. In 2023, the company's various businesses grew steadily. The tap water supply/sewage treatment/environmental protection business achieved operating income of 31.26/30.24/1,495 billion yuan respectively, and gross margins of 40.92%/40.15%/44.52% respectively, an increase of 1.00/1.68/7.41 percentage points over 2022. In terms of sales data, tap water supply/sewage treatment/landfill leachate treatment/sludge treatment/reclaimed water supply business achieved sales volume of 10.68/12.61/143/69/180 thousand tons respectively, an increase of 4.60% /5 compared to 2022.
50%/5.15%/13.11%/13.85% The company's various businesses have maintained a good momentum of development, and the ability to return capital is strong. By the end of 2023, the net cash generated by the company's operating activities was 33.
8.9 billion yuan, +2.22% YoY.
Chengdu raised the fifth phase of sewage treatment fees, and the construction of the project will help high-quality development in the future.
Sewage treatment business: The company has a franchise for sewage treatment and reclaimed water utilization. As of 2023, the scale of sewage treatment projects operated and under construction by the company is about 4.8 million tons/day, and the scale of reclaimed water utilization projects in operation and under construction is about 1.1 million tons/day. During the period, the company delisted the Dongying Sewage Treatment Project and won the bid for the Shannan Sewage Treatment Project and the Longquanyi District Sewage Treatment Project. On the basis of deepening the local market in Chengdu, the company enhanced the company's comprehensive strength in deploying water and environmental protection resources nationwide. According to the “Chengdu Finance Bureau's Approval on the Provisional Price of Sewage Treatment Service Fee for Chengdu Central City Phase V (2024-2026)”, the provisional average sewage treatment service fee for the fifth phase (2024-2026) of Chengdu Central City is 2.63 yuan/ton, an increase of 0.48 yuan/ton over the fourth phase of 2.15 yuan/ton. The increase of about 22% per ton is expected to help increase the company's gross profit in the future sewage treatment business.
Tap water business: The company's tap water business includes a complete water supply industry chain with water intake from water sources, tap water purification, water network transportation, tap water sales and after-sales service. In 2023, the scale of the water supply project operated and under construction by the company was about 4.3 million tons/day, making every effort to promote the construction of the Chengdu Water Supply Plant 7 (Phase III) project. While building on the water supply business, it also vigorously expanded the use of recycled water and actively entered the fields of secondary water supply, direct drinking water, and bottled drinking water.
Environmental protection business: The company's environmental protection sector is mainly engaged in domestic waste incineration power generation, landfill leachate treatment, sludge disposal and food waste disposal. The scale of waste incineration power generation/landfill leachate treatment/sludge disposal/food waste disposal projects in operation and under construction in 2023 is 12000/8430/3116/1450 tons/day, respectively. During the period, the company was delisted from the Xi'an Food Waste Disposal Project to enhance the company's overall competitiveness; it won the bid for the Harmless Food Waste (Kitchen) Waste Treatment Project in the central city of Chengdu (Phase III), consolidating the company's market share and influence within Chengdu.
Investment advice: Based on the current business and future development, we expect the company's net profit to be 21.30/23.12/2,528 billion yuan respectively in 2024/2025/2026, corresponding EPS of 0.71/0.77/0.85 yuan, corresponding to the current stock price PE of 9.9/9.1/8.3 times, respectively, covered for the first time, giving a “buy” rating.
Risk warning: Project commissioning progress falls short of expectations, accounts receivable recovery risk, price adjustment process falls short of expectations, etc.