Incident: The company released its 2024 quarterly report, achieving operating income of 928 million yuan, yoy +5.49%; net profit of 204 million yuan, yoy -9.27%; net profit after deducting non-return to mother of 192 million yuan, yoy -10.39%. The revenue performance was in line with expectations, and the net profit performance was slightly lower than expected.
We expect increased depreciation and investment income from equity participation projects to be the main reasons for the year-on-year decline in the company's net profit. The company's 24Q1 revenue increased 5% year over year, but gross profit decreased by 5% year over year. We believe this is mainly due to the company's fund-raising project last year, fixed assets increased sharply by 2 billion dollars from 11 billion in 23Q2 to 13 billion in 23Q3, and the increase in current depreciation in 24Q1. At the same time, according to the company's quarterly report, the company's net investment income (the company participated in the operation of 2 waste incineration projects, located in Zhaoqing, Xinzhou, etc., with a total design capacity of 4,100 tons/day) decreased by 11 million yuan year-on-year, which is also the main reason for the year-on-year decline in the company's net profit to mother of 20.79 million yuan.
Capital expenditure has been drastically reduced, operating cash flow has continued to increase dramatically. The IPO raised 2.43 billion yuan led to a decline in debt, and the company's ability to pay dividends will be strong in the future. The 24Q1 company paid only 320 million yuan in cash for the purchase and construction of fixed assets, intangible assets, and other long-term assets. Currently, construction projects are only 59 million yuan, and capital expenses are expected to be further reduced in the future. At the same time, the company's 24Q1 net operating cash flow was 518 million, yoy +51%, and the net present ratio reached 2.55.
In addition, in January 2024, the company issued an IPO of 150 million shares and raised 2.43 billion yuan. Affected by this, the company's balance ratio fell from 67% at the end of 2023 to 60% in 24Q1, and the money in hand increased sharply to 3.25 billion yuan in 24Q1. We expect the company's future financial expenses to decline (378 million yuan in 2023). Overall, the company's cash flow performance has improved and future dividend capacity is strong.
Investment analysis: We continue to be optimistic about the scarcity of Guangzhou waste incineration assets, performance growth, and the company's commitment to a high dividend of 60% over three years (the company's actual dividend rate in 2023 is about 64%), maintaining the 2024-26 net profit forecast of 9.10/10.88/1,311 billion yuan, YOY is 24%, 20%, and 21%. The current market value corresponds to the company's 2024-26 PE is 15/12/10 times, maintaining the “buy” rating.
Risk warning: the risk of not being able to fully absorb the new production capacity, the risk of declining revenue from the Li Keng factory, the risk of not being able to renew the company's project agreement after it expires, and the risk of declining national subsidies and bidding.