Incident: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company's revenue was 12.631 billion yuan, yoy +3.06%, net profit of 498 million yuan, yoy +19%, net profit after deducted from non-return mother of 445 million yuan, yoy +36.95%, the company's revenue for the first quarter of 2024 was 2,998 million yuan, yoy +12.23%, net profit due to mother of 172 million yuan, yoy +40.59%. The 2023 performance fell short of expectations, and 24Q1 was in line with expectations.
Goodwill impairment and credit impairment affect the company's profit performance in 2023. In 2023, the company calculated an asset impairment loss of 123 million yuan, of which the goodwill impairment provision was 86.01 million yuan for the acquisition of Zhonglian Environment. The main reason was due to the decline in sales in the sanitation equipment market in 23 years; the credit impairment loss was 216 million yuan, of which 219 million yuan was lost due to bad debts.
Sanitation services: Volume and price have risen sharply, and an annualized contract amount of 1,553 billion yuan was added in 2023, ranking among the top of the market in the same industry.
In 2023, the company's sanitation service revenue was 5.630 billion yuan, yoy +35.38%, and gross margin was 16.68%, an increase of 1.2 percentage points over the previous year. In terms of orders, according to statistics from Environmental Sinan, the company signed a total of 82 new urban service projects, adding a total of 7.652 billion yuan. It ranked third in the same industry market, with an additional annualized contract amount of 1,553 billion yuan, ranking second in the same industry market. By the end of 2023, the company's stock market had an annualized contract amount of 6.567 billion yuan.
Sanitation equipment: Total sales continue to rank first, with new energy sanitation sales ranking first, with a market share of 32%. In 2023, the industry's sanitation vehicle sales volume was -6.21% year over year to 76,304 units. The total sales volume of the company's sanitation equipment was 12,319 units, ranking first for 23 consecutive years. Among them, sales of new energy vehicles increased by 44.2% year on year, accounting for 32.4% of the market share, ranking first.
In addition, along with the increase in new energy sanitation sales, the company's gross margin of sanitation equipment increased 1.79 percentage points year-on-year to 27.71%.
Intelligent sanitation robots have been launched one after another. At present, the company has independently developed more than 10 smart sanitation robots. The company's 5G smart sanitation robot clusters have been put into operation in Shenzhen, Changsha, Suzhou, etc., helping to set a new benchmark for the smart sanitation industry.
Operating cash flow declined slightly, and dividends continued to be steady. The company's net operating cash flow in 2023 was $1,386 billion ($1,662 million in 2022), and the overall cash flow was steady. In 2023, the company plans to distribute a cash dividend of 1.25 yuan (tax included) for every 10 shares and a cash dividend of 396 million yuan. Based on this calculation, the company's total cumulative cash dividend for 2021-23 is 1,056 million yuan, with dividend rates of 41.45%, 83.18%, and 79.43%, respectively.
Investment analysis opinion: Considering the risk of impairment, we lowered the company's net profit forecast for 2024-25 to $749/845 million ($876/1,004 million yuan before the reduction) and added the 2026 profit forecast to $938 million. The current market value corresponds to 24-26PE by 21/19/18 times, respectively. In view of the fact that the company ranked first in new orders in the field of sanitation equipment and sanitation services, its stable market position, and obvious synergy benefits, we maintain the “increase” rating.
Risk warning: Sanitation equipment sales fall short of expectations; sanitation service expansion falls short of expectations; risk of impairment of goodwill and credit impairment.