The 23-year results are under pressure, and the trend of improving free cash flow continues. The company released its annual report for 2023 and its quarterly report for 2014: achieved revenue of 3,956 billion yuan (-13.4% YoY) and realized net profit of 629 million yuan (-15.5% YoY); 24Q1 achieved revenue of 805 million yuan (-22.65% YoY) and net profit to mother of 139 million yuan (-18.60% YoY). Projects under construction have reduced the impact of shrinking project profits, increased management costs, and credit impairment losses, etc., putting pressure on the company's revenue performance. Due to the extension of the settlement cycle for national subsidies and garbage disposal fees, the company's net operating cash flow in '23 was -19.2% year-on-year to $978 million. As investment peaked, the net investment cash outflow ($689 million in '23) narrowed sharply, and the trend of improving free cash flow continued.

The production capacity in operation exceeds 40,000 tons/day, accounting for 79% of operating revenue. Solid waste treatment business (operation) and PPP project construction services achieved revenue of 3140 million yuan and 815 million yuan respectively in 23 years, accounting for 79% and 21%. Since 2023, the company has added 5,400 tons/day. By the end of March '24, the production capacity in operation had exceeded 40,000 tons/day. The company's 23 year garbage disposal capacity was 13.4468 million tons (+18.0% year over year), achieving 4.726 billion kilowatts of power generation (+11.5% year over year). The company's 23-year power generation capacity and tons of feed-in electricity were 351 kWh/ton and 290 kWh/ton, respectively.

The dividend payment rate was raised to 33%, and the corresponding dividend ratio for A Shares/H Shares was 2.3%/7.0%. The company paid out a dividend of RMB 15 million (before tax) per share in 2023, with a total dividend of about RMB 209 million (RMB 167 million for the same period in '22), with a dividend payment rate of 33.22% (22.45% for the same period in '22), and corresponding dividend ratios of about 2.3% and 7.0% for A/H shares.

Profit forecasting and investment advice. We expect the company's net profit to be 713/790/806 million yuan in 2024-2026, and the corresponding PE for A-shares is 13.5/12.2/12.0 times. Comparable companies gave 15 times PE in 2024, corresponding to a reasonable value of 7.67 yuan/share. Refer to the company's AH share premium ratio, which corresponds to a reasonable value of HK$3.02 per share for H shares, all maintaining a “buy” rating.

Risk warning. Low expectations for new orders, low expectations for subsidy payments, risk of policy changes, etc.