Core views:
Guangzhou solid waste comprehensive platform with steady dividends+profits. The company is the only platform for waste incineration projects under Guangzhou Guanghuan Investment. The production capacity was 0.032 million tons/day in 2023, and the compound revenue/performance growth rate reached 24.9%/55.5% in the past 5 years. In 2023, the company achieved revenue of 3.54 billion yuan (+7.4% year over year) and net profit of 0.735 billion yuan (YoY +2.7%). Operating projects continue to contribute to stable cash flow, all projects under construction have been completed, and 2024Q1's simplified free cash flow has been corrected. The company promises a dividend ratio of at least 60% for 2023-25, a dividend amount of 0.468 billion yuan in 2023, and a dividend ratio of 63.69%, corresponding to the current market capitalization dividend rate of 3.2%.
Scale effect+high processing cost+self-developed technology, leading the industry in operating indicators. Unlike the BOT model common in the industry, most of the company's projects use a government procurement service model and are confirmed as fixed assets, making the project more sustainable. The company's average single project scale reached 2,292 tons/day, the unit price for post-tax treatment in 2022 was 146.75 yuan/ton, and the high-parameter incinerator developed and produced by itself reached 525 kilowatt-hours/ton in 2023, leading the industry in various operating indicators. Furthermore, Guangzhou Environmental Investment, the controlling shareholder of the company, undertakes the integrated sanitation business in Guangzhou, and has remarkable industrial chain synergy advantages.
There has been a steady increase, and the mixing of old waste and cogeneration of heat and power contributed to the increase in profits. In recent years, the policy side has actively promoted the use of surplus incineration capacity to treat old waste and domestic waste to balance heating:
In 2023, the company mixed 0.646 million tons of stale garbage. According to estimates, the annual excavation volume of the Xingfeng and Huadu landfills can reach 1.9 million tons of stale garbage, and the unit price of garbage disposal at Xingfeng landfills is slightly higher than fresh garbage; in addition, the company actively lays out waste incineration heating through mobile heating, pipeline heating, etc., and sells 0.1356 million tons of steam in 2023. According to estimates, the proportion of the corresponding garbage volume is 0.75%. In the future, replacing 10% of heating with heating will bring 8.9% to 20.1% gross profit elasticity .
Profit forecasting and investment advice. Without considering a one-time state subsidy, it is expected to achieve net profit of 0.877/1.048/1.229 billion yuan in 2024-26, corresponding to the latest PE 16.6/13.9/11.9 times. The company is the leading solid waste company in Guangzhou and promises a dividend ratio of at least 60%. Refer to comparable companies that gave 20 times PE in 2024, corresponding to a reasonable value of 19.50 yuan/share, and for the first time covered a “buy” rating.
Risk warning. Project expiration risk; garbage disposal fee verification risk; additional production capacity absorption risk.