Core views
The company's revenue for the first quarter of 2023 and 2024 increased by 18.93% and 31.44%, respectively, over the same period last year. The year-on-year decline in profit in the first quarter was mainly due to the company's participating company Gaojia Solar, which was affected by the upstream PV boom, the company's profit level declined, and the company's investment income decreased. Furthermore, competition in the company's boiler equipment market was fierce, and product gross profit declined. The company's new equity incentive was released. The compound growth rate of net profit deducted from 2025-2027 is not less than 8% compared to 2023. It is expected that hydrogen electrolyzer and thermal power flexibility transformation technology will gradually become the company's second growth curve.
occurrences
The company achieved revenue/net profit after deduction of RMB105.1/7.4/510 billion yuan in 2023, +19%/+2%/-10% YoY; of these, 23Q4 achieved revenue/net profit after deduction of RMB28.1/23/0.3 billion yuan, +0.6%/-2%/-79% YoY, +4%/+114%/-74% YoY. 24Q1 achieved revenue/net profit attributable to mother/ net profit excluding net profit of 29.0/1.9/180 million yuan, +31%/-16%/-16% year over year, and +3%/-18%/+593% month-on-month.
Brief review
1) Performance review: The company's 2023/2024Q1 revenue increased by 18.93%/31.44% respectively over the same period last year. The revenue growth was mainly due to the company's completion of acquisitions of three thermal power plants in Puyuan Thermal Power, Xulian Thermal Power, and Nanjing Gas Engine in May and June 2023; in terms of profit, the net profit of 2024Q1 fell 16% year on year, mainly due to the company's participation in Gaojia Solar. Affected by the upstream PV boom, the company's profit level declined, and the company's investment income decreased. By business:
Environmental protection equipment: Revenue of 881 million yuan in 2023, +15.6% year on year, revenue accounting for 8.4%, gross profit margin -5.3pct. Revenue increase was mainly due to a new breakthrough in internal combustion engine waste heat boiler exports. At the same time, the environmentally friendly garbage furnace market picked up. However, due to macroeconomic sentiment and other factors, the company's environmentally friendly furnace models such as combustion engine waste heat stoves coped with market competition and further increased market share. Gross profit declined; Energy-saving and efficient power generation equipment: 2023 revenue of 568 million yuan, -50.8% year-on-year, accounting for 5.4% of revenue The gross profit margin was 20.7%, -1.2pct year on year. The decline in revenue was mainly due to a decline in the speed and scale of traditional small and medium-sized thermal power investment and construction, a slowdown in downstream customer investment, a significant decline in market demand for traditional boilers such as circulating fluidized beds and pulverized coal furnaces, and an extension of the delivery cycle for some projects;
Municipal environmental protection engineering and services: 2023 revenue of 2,099 billion yuan, year-on-year revenue of +12.4%, gross profit margin of 12.5%, year-on-year -1.3 pct, mainly environmental engineering such as sewage treatment, increased significantly, and the company's municipal environmental protection project orders and project volume increased; power plant engineering and services: 2023 revenue of 2,225 billion yuan, +46.8% year on year, accounting for 21.4% of revenue, gross profit margin 13.1%, -1.6 pct year on year, revenue increase mainly due to large scale of photovoltaic power plant engineering business promotion;
Environmental operation services: Revenue in 2023 was 605 million yuan, -5.3% year-on-year, with a gross profit margin of 31.2%, with a year-on-year profit margin of -8.6pct. The decline in revenue was mainly due to improved water quality in Taihu Lake. The decline in cyanobacteria production clearly led to a decline in disposal revenue. At the same time, flying ash landfills were affected by the closure of surrounding waste power plants in accordance with urban planning requirements, and the decline in landfill volume led to a decline in revenue;
Local thermal power and photovoltaic operation services: 2023 revenue of 3,979 billion yuan, +42.7% year on year, accounting for 37.8% of revenue, gross profit margin of 22.0%, +2.5pct year on year. The increase in revenue was mainly due to the consolidated revenue of mergers and acquisitions during the year.
2) Performance outlook: The company released the 2024 Restricted Stock Incentive Plan (draft), and new technology reserves are expected to become the second growth curve. The assessment target in the new phase of the company's equity incentive plan is that the compound growth rate of net profit deducted from non-return to mother in 2025-2027 is not less than 8% compared to 2023, and not lower than the average level of the same industry. The cash dividend ratio is not less than 30% of the net profit of listed companies that year, and the main business revenue accounts for no less than 90% of operating income.
3) Business development: The 1500nm3/h alkaline electrolyzer products in the company's reserves have participated in China Energy Construction's qualified supplier bidding and shortlisted supplier list, and are expected to become the company's second growth curve as industry demand grows.
Investment advice: Net profit due to mother is expected to be 7.92, 8.99, and 988 million yuan in 2024, 2025, and 2026, corresponding to PE 12, 11, and 10 times, maintaining a “buy” rating.
Risk analysis
1) Market competition risk: In the context of energy restructuring and a continuous decline in the growth rate of new investment, market competition in the boiler industry is becoming more and more intense, and the company faces the risk of declining market share and gross margin due to increased competition. In terms of municipal environmental protection business, the external macroeconomic and local market environment is under certain pressure, market capacity is shrinking, and competition is more intense. At the same time, the municipal environmental protection industry has certain geographical monopoly and public welfare characteristics, and business development is susceptible to administrative barriers to a certain extent.
2) Product development falls short of expectations. New product development can help enterprises achieve product competitiveness. Continued technological iteration falling short of expectations may lead to a decline in the competitiveness of the company's products, thereby affecting the company's revenue and profit performance. The company's new products are mainly electrolyzers and thermal power flexibility transformation equipment in the equipment field. If the development of new products falls short of expectations, it will affect the company's revenue in the corresponding sector.
3) Risk of fluctuations in raw material prices: Steel is one of the main raw materials in the company's boiler equipment manufacturing business, and coal and natural gas are the main raw materials for the production of cogeneration enterprises under the company. Large fluctuations in the prices of steel, coal, and natural gas will have a certain impact on the company's business performance.