Description of the event
Recently, Hanlan Jining confirmed that significant progress has been made in the power generation revenue work. Hanlan Jining received electricity bills for power generation from November 2020 to May 2024, totaling 132.6 million yuan, which is expected to increase the company's current net profit by about 117 million yuan, accounting for about 8.21% of the company's net profit returned to mother in 2023.
Incident comments
Basic situation of the project: Hanlan (Jining) Solid Waste Disposal Co., Ltd., a wholly-owned subsidiary of Hanlan Environment, and Jining Zhongke Environmental Power Co., Ltd. signed the “Phase II Asset Transfer Agreement” in October 2019. Hanlan Jining purchased the assets under construction of the Jining Domestic Waste Incineration Power Generation Phase II renovation and expansion project, and invested, constructed and operated the Jining Phase II project. In September 2020, the Jining Municipal Administration granted the concession for the second phase of the Hanlan Jining project. The second phase of the project will be operated by Hanlan Jining, and the right to obtain waste-to-energy revenue, garbage disposal subsidies and other income. The Jining Phase II project was put into trial operation in the second half of 2020 and officially put into operation in January 2021.
Reasons for unpaid electricity revenue: Since the second phase of the project is a renovation and expansion of the first phase of the Jining Zhongke project, and the first and second phase projects share equipment such as steam turbines, etc., Hanlan Jining signed a “Shared Equipment Rental Agreement for the Phase II Project” with Jining Zhongke and others in August 2020. The first phase of the project was shut down on October 31, 2020. The electricity generation from November 1, 2020 will all be generated by the second phase of the project operated by Grand Blue Jining. In January 2021, Hanlan Jining obtained the “Letter of Consent to Hanlan (Jining) Solid Waste Disposal Co., Ltd. to independently settle feed-in tariffs” from Jining Zhongke and the Jining Urban Management Bureau. Since October 2020, Hanlan Jining has been able to connect electricity from Phase II waste incineration by leasing equipment from the Jining Zhongke Phase I project. Therefore, there is a dispute over the confirmation of Hanlan Jining's power generation revenue. The State Grid Shandong Electric Power Company Jining Power Supply Company has suspended payment of electricity charges for the Jining Phase II project after October 31, 2020. As a result, Hanlan Jining has not confirmed power generation revenue since November 2020.
On February 29, 2024, after a final ruling by the Shandong Provincial High People's Court, it was confirmed that the feed-in electricity charges under the name of Jining Zhongke Environmental Power Co., Ltd. for the Jining 800-ton domestic waste incineration power generation project will be owned by Hanlan (Jining) Solid Waste Disposal Co., Ltd. from November 1, 2020. Recently, Hanlan Jining confirmed that significant progress has been made in the power generation revenue work. Hanlan Jining received electricity costs for power generation from November 2020 to May 2024, totaling 132.6 million yuan. It is expected to increase the company's current net profit by about 117 million yuan, and increase recurring profit by about 33 million yuan every year in the future.
Ongoing waste incineration projects are gradually put into operation, and overseas markets are being deployed, and performance is growing steadily. As of the end of 2024Q1, the company's current orders for domestic waste incineration power generation totaled 35,750 tons/day (excluding shareholding projects), of which 29,800 tons/day (1,750 tons/day of additional production was added in 2023), and the total production capacity of the projects under construction+preparation and unbuilt projects was 5,950 tons/day. As the project is gradually put into operation, there will still be a certain operating profit contribution in the future. Furthermore, considering the gradual saturation of the domestic market, the company has begun to actively deploy overseas markets such as Southeast Asia. The second phase of agricultural reclamation project in Bangkok, Thailand (1,400 tons/day) and the Anu project (1,400 tons/day) began construction in February 2024, and the commissioning of the project will increase the company's investment income. The company's net profit for 2024-2026 is estimated to be 1,70/17.7/1.95 billion yuan, respectively, and the corresponding PE is 9.7x/9.4x/8.5x, respectively, maintaining a “buy” rating.
Risk warning
1. Risk that the project progress falls short of expectations;
2. The risk of a decline in national compensation.