Incident: On April 29, the company released its 2024 quarterly report, achieving operating income of 1,552 million yuan, up 0.42% year on year; net profit to mother of 390 million yuan, up 11.46% year on year; net profit after deducting non-return to mother of 386 million yuan, an increase of 10.88% year on year.
The business structure continued to be optimized, and capital expenditure was reduced: in 1Q24, the company achieved a 11.46% year-on-year increase in net profit; gross profit margin of 37.22%, up 3.58pct year on year; or due to the increase in the company's share of project operation and equipment sales revenue, the overall gross margin was further improved; net cash flow from operating activities was 728 million yuan, an increase of 148.97% year on year, mainly due to changes in the business structure of Sanfeng Kawanta, increased cash inflows from equipment and reduced cash outflows from EPC subcontracts; Cash payments from intangible assets and other long-term assets were 220 million yuan, a year-on-year decrease of 37.85%; net cash flow from investment activities was -240 million yuan. Compared with the same period in 2023, the net outflow decreased by 179 million yuan. Capital expenditure has been reduced, and the company's potential for high dividends has been further enhanced.
Solid waste operations are progressing steadily, starting domestic and international “two-wheel drive”: By the end of 2023, the company's total waste incineration power generation capacity was 61,250 tons/day, and the wholly-owned and controlled project design capacity was 4,250 tons/day, and 4250 tons/day was still under construction/construction/unbuilt. As related production capacity is gradually put into operation and production capacity climbing, it is expected that the share of the company's project operating revenue will increase further, and the asset structure will continue to be optimized. Taking advantage of the “Belt and Road” Dongfeng, the subsidiary Sanfeng Cavanta signed 14 supply contracts in 2023, with a total design and processing capacity of about 12,000 tons/day. The company's overseas market performance increased at an accelerated pace, opening a new stage of domestic and international “two-wheel drive”.
Investment suggestions: The company's payback continues to be optimized and cash flow is abundant; incineration production capacity is put into operation in an orderly manner, and the share of operating revenue has increased; breakthroughs have been made in overseas markets to launch domestic and international “two-wheel drive”. According to the business conditions, the company's profit forecast is maintained. The company's EPS for 24/25/26 is expected to be 0.78/0.85/0.90 yuan/share, respectively, corresponding to the closing price of April 29, 2024, the PE is 10/9/9 times, respectively, maintaining the company's 12 times PE in 2024 and a target price of 9.36 yuan/share, maintaining a “careful recommendation” rating.
Risk warning: The progress of project construction and operation falls short of expectations; risk of slowing industry growth; risk of slowing down the pace of inclusion in the national supplement catalogue; risk that major solid waste business development falls short of expectations.