Key points of investment

Incident: On April 19, 2024, Bussan Environmental Energy released its 2023 annual report and the first quarter report for 2024. The annual revenue for 2023 was 44.327 billion yuan, a year-on-year decrease of 19.70%; net profit to mother was 1.059 billion yuan, a decrease of 0.31% year-on-year. Revenue for the first quarter of 2024 was 10.462 billion yuan, a year-on-year decrease of 12.28%; net profit to mother was 0.239 billion yuan, a decrease of 22.31% year-on-year. Bussan Huaneng paid dividends for 3 consecutive years, with a cumulative cash dividend of about 1.172 billion since listing; Wind shows that the company's dividend rate in 2023 was about 4.61%, ranking 20/84th in the industry.

There is a weak balance between coal supply and demand, and peak summer and inventory replenishment are expected to drive a price rebound: in 2023, the company's coal circulation business revenue was 41.1 billion yuan, down 21.03% year on year; annual coal sales volume was 55.4848 million tons, up 4.26% year on year, mainly due to weak overall coal supply and demand, declining demand for non-electricity, and falling coal prices.

In the short term, factors such as the peak of summer, marginal improvements in fundamentals, and low port inventories may drive a low rebound in coal prices.

The regional advantage of cogeneration is stable, and gross margin and revenue contributions are rising steadily: in 2023, the gross profit margin of the company's cogeneration business was 24.13%, and the gross margin increased 1.35 percentage points over the previous year. The company's thermal power industry contributed 3.125 billion yuan in revenue, accounting for a total revenue increase of 5.21% in 2021 to 7.05% in 2023, added 47 new users in 2023, sold 8.3488 million tons of steam (+14.75%), electricity 1319.9024 million kilowatt-hours (+23.76% year over year), and compressed air 2.78 billion meters? , a year-on-year increase of 13.75%.

It is expected that with the expansion of the cogeneration region, the revenue of the cogeneration sector is expected to increase steadily.

The new energy business grew rapidly, opening up a second growth curve: in 2023, the new energy business achieved revenue of 60.85 million yuan (+870.04% year over year), and PV modules and related equipment contributed 44.2795 million yuan in sales revenue (+605.88% year over year), growing rapidly. New energy plays an important role in achieving carbon neutrality goals, and the new energy business is expected to become a new growth point for the company.

The green and low-carbon effects of ESG are initially evident: the company's many distributed photovoltaic projects, which have vigorously expanded the layout of non-fossil energy projects, have been connected to the grid; the company's annual sludge treatment capacity has reached 0.7497 million tons. Its Zhejiang Bussan Jinyi Biomass Cogeneration Project has been put into operation, with an annual power generation capacity of 0.2 billion degrees, a heating capacity of 0.85 million tons, and a reduction of CO2 emissions of about 0.46 million tons. The company's subsidiary Xinjia Aisi uses a physico-chemical+biochemical treatment system to recycle about 0.04 million tons of wastewater per year after the sludge has dried. Pujiang Thermal Power's “Circulating Fluidized Bed Boiler Textile Waste Process Control and Exhaust Gas Treatment Research” innovative research and development project was awarded the third prize of the Thermoelectric Industry Green and Low-Carbon Technology Innovation Award by the China Equipment Management Association.

Risk warning: Demand for coal is declining, and the cost reduction in the new energy industry falls short of expectations.