The recycling business affected short-term results, and free cash flow turned positive. The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved revenue of 3.178 billion yuan (-5.14% YoY) and net profit to mother of 603 million yuan (-17.13% YoY). The decline in performance is due to insufficient capacity utilization in the lithium battery recycling business, falling inventory prices, and impairment of goodwill; insufficient capacity utilization in the waste rubber recycling business. However, the main solid waste industry is growing steadily. In terms of cash flow, the company had a net operating cash inflow of 1,261 billion yuan in 2023 (-16.30% year over year, poor recovery payments in '23), but the net investment cash outflow was 996 million yuan (only about half of '22), and free cash flow has been corrected.
Solid waste projects have been put into operation, and the amount of waste treated and power generated has been growing steadily. In 2023, the company achieved 2,922 million kilowatts of electricity (+3.68% YoY), 2,457 billion kilowatts of feed-in electricity (+3.44% YoY), 8.5 million tons of garbage stored (+2.68% YoY), and 26,800 tons of kitchen grease extraction (+30.42% YoY). By the end of 2023, the company had an incineration production capacity of 212,000 tons/day, trial operation+ projects under construction, 1,700 tons/day; a production capacity of 2,650 tons/day for food and kitchen under construction/ preparation capacity of 670 tons/day. The company's current projects are basically put into operation, and it is about to enter the stage of stable cash flow generation.
The inventory era focuses on improving quality and efficiency, and abundant cash flow provides dividend potential. Using ultra-high pressure reheating technology for the South Taihu Lake Phase V project, the overall thermal efficiency was increased from 22% to 30%, and the power generation capacity was increased from 350 to 700 degrees per ton; heating, the heating capacity exceeded 1 million tons in 23 years, and a mobile energy storage heating pilot was launched; with price increases, the treatment costs of the six waste incineration projects increased by an average of 22 yuan/ton. In the inventory era, we are optimistic that the company's operations will be stable, and the potential for subsequent dividends will increase under the contraction of capital expenditure. In 2023, the dividend ratio is 36%, and the dividend rate will reach 3.28%.
Profit forecast and investment advice: An undervalued solid waste leader, looking forward to future dividend potential.
The estimated net profit for 2024-2026 is 7.10/796/835 million yuan, corresponding to the latest PE of 8.69/7.75/7.38 times. Referring to peer valuation and the company's potential dividend capacity, the company was given a PE valuation of 12 times in 2024, with a reasonable value of 19.84 yuan/share, maintaining a “buy” rating.
Risk warning. Accounts receivable repayment risk; low profit expectations from regenerative business; low dividend expectations.