环保：垃圾焚烧稳定运营，环卫及水务等稳健发展。截至2023 年底，公司垃圾焚烧产能28,550 吨/日，产能利用率约99%。2023 年公司非竞争性配置项目占比78%，补贴退坡对公司影响有限。同时公司还有危废29.95 万吨/年，医废1.6 万吨/年，环卫年化订单4.3亿元。2023 年公司垃圾焚烧、危废医废和环卫收入分别约为23.27 亿元、1.17 亿元2.21亿元。此外，公司已投产31 万吨/天供水+37 万吨/天污水，2023 年收入约3.13 亿元。Key points of investment:
The company is a utility platform under the Henan Provincial Department of Finance, accounting for 78% of operating profit. The company is mainly engaged in environmental protection and highway operation.
The majority shareholder, Henan Investment Group, holds 56% of the shares, and the actual controller is the Henan Provincial Department of Finance. In 2023, the company's net profit was 1,075 million yuan, of which environmental protection (solid waste, sanitation, water) accounted for 47% of gross profit, and highways accounted for 31%.
Environmental protection: Stable operation of waste incineration, steady development of sanitation and water services. By the end of 2023, the company's waste incineration production capacity was 28,550 tons/day, and the capacity utilization rate was about 99%. In 2023, the company's non-competitive allocation projects accounted for 78%, and the decline in subsidies had limited impact on the company. At the same time, the company also has 299,500 tons/year of hazardous waste, 16,000 tons/year of medical waste, and 430 million yuan in annual sanitation orders. In 2023, the company's revenue from waste incineration, hazardous medical waste and sanitation was approximately RMB 2,327 million and RMB 117 million and RMB 221 million respectively. In addition, the company has put into operation 310,000 tons/day of water supply+370,000 tons/day of sewage, with revenue of about 313 million yuan in 2023.
Highways: Contributing nearly 500 million dollars in annual profits and 1.2 billion in cash flow. The company operates 3 highways, contributing an average annual revenue of nearly 1.5 billion yuan and net profit of nearly 500 million yuan, of which Xu Pingnan accounts for about 84% of revenue, which is expected to expire in 2032.
Project: The gross profit in 2023 accounts for about 15%, and the majority shareholders will work together to maintain development in the future. The majority shareholder, Henan Investment Group, has diverse industries, including infrastructure construction, electricity, heating, paper making, natural gas, etc., and has broad scope for collaboration with the company's engineering business.
Accounts receivable are expected to improve+capex decline+debt optimization, and cash flow continues to improve, helping to increase dividends. In 2023, the company's operating cash flow was about 1.5 billion yuan, mainly contributed by highways, and environmental protection was affected by national and provincial subsidy arrears. The company's accounts receivable book balance in 2023 was 2.7 billion yuan, of which one-year futures account for 70%. Judging from the structure, waste-to-energy subsidies account for 42%, and the risk of bad debts is small. At the same time, with the full commissioning of the company's waste incineration in 2023, Capex will gradually decline.
Furthermore, by the end of 2023, the company had interest-bearing liabilities of 14.5 billion yuan (current financial expenses of 529 million yuan). In June 2024, the company plans to issue no more than 3 billion dollars in bonds and securities to optimize the debt structure. The company's dividend rate in 2023 is only 15%. We believe there is room for improvement in the company's dividend rate as the company's cash flow increases in the future.
Investment analysis: We expect the company's net profit to be 11.38/11.87/1,238 billion yuan in 2024-26, corresponding PE 6.4/6.2/5.9 times. Referring to the 2024 PE average value of comparable companies, the company was given 9xPE in 2024, corresponding to a target market value of 10.2 billion yuan, with room for growth of 40%. It covered for the first time and maintained a “buy” rating.
Risk warning: Continued increase in accounts receivable and risk of recycling, risk of waste-to-energy projects not being included in the subsidy list, risk of falling profits due on expressways, risk of receiving administrative supervision measures decisions from the Henan Regulatory Bureau, and the company received inquiries from the Shenzhen Stock Exchange annual report to remind investors of related risks.
