Incident: In 2023, the company achieved revenue of 10.580 billion yuan, an increase of 20.58%; net profit attributable to mother of 505 million yuan, a decrease of 27.13%; net profit after deducting non-attributable net profit of 442 million yuan, a decrease of 32.64%; and a weighted average ROE of 4.73 pcts to 5.56%. In Q1 2024, we achieved revenue of 3.125 billion yuan, an increase of 80.10%; net profit to mother of 194 million yuan, a decrease of 5.95%; net profit after deducting non-attributable net income of 166 million yuan, a decrease of 9.53%; and the weighted average ROE decreased by 0.23 pct to 2.07%.
The revenue scale has exceeded 10 billion dollars, and the operation of resource-oriented projects is under pressure. In 2023, the company achieved operating income of 10.580 billion yuan, an increase of 20.58%, and the revenue scale exceeded 10 billion yuan, mainly due to the contribution of the new commissioning project in the resource sector. The Jiangxi Xinke project was put into operation, and Jingyuan had a high energy production capacity load; the net profit to the mother was 505 million yuan, a decrease of 27.13%. The main reason was 1) Asset impairment pressure: New production projects affected the load due to factors such as climbing capacity and technical reform. Some projects affected disposal capacity and profitability, and delayed the release of profits; 2) Depreciation losses of 78 billion yuan in asset depreciation, part of which Fluctuations in commodity prices caused inventory price losses of 31 million yuan, and Guizhou Hongda and Tengzhou Gaoneng combined goodwill impairment losses of 0.38 million yuan. 3) Financial expenses: Projects under construction were gradually consolidated, and financial expenses increased by 29%.
The decline in first-quarter results narrowed rapidly, and the upward recovery in project operation is expected to accelerate. In the first quarter of 2024, the company achieved operating income of 3.125 billion yuan, an increase of 80.10%; net profit to mother was 194 million yuan, a decrease of 5.95%. Chongqing Yaohui carried out technical improvements to equipment and processes in 2023 to improve production efficiency. As of 2024/4/26, the core deep resource project Jiangxi Xinke has been successfully completed and put into operation, achieving the expected results. Project operations continue to improve, and the release of performance is expected to reach an inflection point.
Resource utilization contributes to core growth, and environmental operation and engineering performance are steady. 2023 by business segment:
1) Resource utilization of solid waste and hazardous waste: Revenue of 6.468 billion yuan, an increase of 59.50%, and gross margin decreased by 5.73 pct. This is an increase in the revenue share of the Jiangxi Xinke project and a decrease in the overall gross profit margin. The company's hazardous waste recycling projects are mainly metal resources. As of 2023/12/31, the project has approved a total of 785.35 million tons/year of hazardous waste treatment licenses. One project is under construction, and it is proposed to apply for a hazardous waste license of 198,000 tons/year. Ongoing projects have been steadily improving, new construction projects continue to advance, and front-end collaborative competitiveness has been strengthened; 2) Environmental protection operation services: revenue of 1,628 billion yuan, an increase of 11.71%, gross profit margin of 46.57%, and +4.95pct.
Operating projects have developed steadily. As of 2023/12/31, the total number of projects in operation included 13 waste incineration projects, totaling 11,000 tons/day, 7 hazardous waste harmless projects, totaling 161,800 tons/day, medical waste disposal 22 tons/day; 3) Environmental engineering sector: revenue of 2,484 billion yuan, a decrease of 23.84%, gross profit margin of 25.51%, a total decrease of 1.85 pcts. The total number of new orders signed in 2023 was 3.123 billion yuan, an increase of 6.40%.
Inventory reserves affected operating cash flow in 2023, and cash flow improved markedly in the first quarter of 2024.
The net cash flow from the company's operating activities in 2023 was 953 million yuan, a decrease of 113.63%, mainly due to the preparation of raw materials to increase safety stocks and paving metals to increase inventory value. With the gradual release of Jiangxi Xinke's production capacity, the first quarter of 2024 achieved a net cash flow of 99.89 million yuan from operating activities, an increase of 968 million yuan over the previous year, and achieved a correction. Inventory turnover and sales repayment of Jiangxi Xinke's production are recovering.
Profit forecast and investment rating: Affected by the pace of technical reform and commissioning of the project, we lowered the company's net profit to mother in 2024-2025 from 11.8/14.4 to 9.3/110 billion yuan, and forecast net profit to mother of 1.29 billion yuan in 2026, an increase of 84%/19%/16%, and 8 times the 2024-2026 PE 11/9/9 (2024/4/29).
The technical reform of the company's project was completed, the release of climbing performance was accelerated, and the “buy” rating was maintained.
Risk warning: Raw material prices fluctuate, capacity utilization falls short of expectations, and competition intensifies.