Key points of investment
Incident: 2024H1 achieved operating income of 7.545 billion yuan, an increase of 68.85%; net profit to mother was 0.416 billion yuan, a decrease of 15.84%; net profit not attributable to mother was 0.412 billion yuan, a decrease of 4.34%; and the weighted average ROE decreased by 1.04 pct to 4.37%. The company distributes a cash dividend of RMB 3.3 (tax included) for every 10 shares, for a total of approximately RMB 0.5 billion.
Resource projects are put into operation and resumed, and 24H2 is expected to centrally release the inflection point. 2024H1's solid waste and hazardous waste resource utilization segment achieved revenue of 5.676 billion yuan, an increase of 129.03%. The main reason was that Jiangxi Xinke was fully put into operation at 24Q2, contributing about 2.8 billion yuan in revenue corresponding to 24H1; the gross profit margin was 8.76%, a decrease of 2.90%, mainly due to Jiangxi Xinke's deep resource processing lowering the overall profit level of the sector. By project, Jiangxi Xinke 24H1, a deep resource project, has been fully put into operation, and the supply capacity of cathode copper and other rare metal products has been greatly increased, with a corresponding net profit of 0.077 billion yuan, an increase of 80%; the shipment of the original project Gaoneng Pengfu 24H1 exceeded expectations, contributing 0.049 billion yuan in profit, an increase of 76%; Jingyuan Gaoneng 24H1 contributed 0.08 billion yuan to profit, a decrease of 21%, mainly due to an increase in procurement costs; Chongqing Yaohui completed technical reform in February 24, and Jinchang High Energy was put into operation in February 24, 4 Technical improvements were completed in June, production began in June, and supply was gradually increased. With the centralized release of 24H2 technology reform projects, we expect that the resource utilization capacity load will gradually improve, supply will gradually expand, and the synergy effect of multi-category recycling+deep integration of the industrial chain is expected to bring about an inflection point in performance.
Environmental transportation services have steadily consolidated their performance, and project quality control has become stricter, and the gross margin of the project has declined. 24H1's environmental protection operation services achieved revenue of 0.883 billion yuan, an increase of 9.12%, a gross profit margin of +5.61 pct, mainly due to internal technical improvement optimization and active expansion of heating and gas supply projects; project operation was stable. As of 24, H1 had 13 domestic waste incineration projects in operation, with a total treatment capacity of 0.011 million tons/day, and 7 harmless solid waste hazardous waste projects, with a total hazardous waste treatment license volume of 0.1618 million tons/year and medical waste disposal license volume 22 tons/day. 24H1's environmental engineering revenue was 0.987 billion yuan, a decrease of 16.81%, gross profit margin of 16.61%, and a decrease of 13.49 pct. This was mainly due to a decline in gross profit from newly signed orders due to stricter quality control, and the combined project settlement cycle affected current profit.
H1 cash flow improved significantly year over year, and additional stocking was added to handle peak loads. The net cash flow from 24H1's operating activities was 0.11 billion yuan, an increase of 108.11%, mainly due to the negative impact of Xinke's full-line production, compounded by the negative impact of large-scale preparation of raw materials; 24H1's inventory was 5.276 billion yuan, an increase of 100% over the beginning of the year, mainly due to an increase in Q2 Xinke's production capacity load and increased safety inventory. With the gradual release of deep-resourced production capacity, we expect the pace of material preparation and sales repayment to resume in '24.
Profit forecast and investment rating: We maintained the company's net profit of 0.93/1.1/1.29 billion yuan in 2024-2026, an increase of 84%/19%/16%, and 7.6/6.4/5.5 times the 2024-2026 PE (2024/8/23). The company's technology reform projects have entered the harvest period. Steady operation is awaiting the release of performance and maintaining a “buy” rating.
Risk warning: Raw material prices fluctuate, capacity utilization falls short of expectations, and competition intensifies.
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