Introduction to this report:
2024H1's performance is in line with expectations, the operation is steady as always, the operation maintains the leading level of the industry, and actively develops international business.
Key points of investment:
Maintain an “Overweight” rating. We maintain our 2024-2026 net profit forecast of 1.259, 1.372, and 1.498 billion yuan, respectively, and corresponding EPS of 0.75, 0.82, and 0.89 yuan, respectively.
As free cash flow continues to improve and dividends increase, the company is expected to revalue the value, give 15 times PE in 2024, raise the target price to 11.25 yuan, and maintain the “increase in holdings” rating.
Construction revenue declined, equipment revenue grew rapidly, and performance was in line with expectations. 1) 2024H1 achieved revenue of 3.132 billion yuan, an increase of 5% year on year; attributable net profit of 0.666 billion yuan, an increase of 5% year on year; after deducting non-attributable net profit of 0.662 billion yuan, an increase of 9% year on year. 2024Q2 achieved revenue of 1.579 billion yuan in a single quarter, after deducting non-vested net profit of 0.276 billion yuan, an increase of 7% over the previous year.
2) The company's EPC construction revenue declined rapidly along with the decline in projects under construction. 2024H1 decreased 82% year over year to 0.122 billion yuan; equipment sales revenue increased 108% year over year to 0.929 billion yuan; and operating revenue increased steadily 11% to 1.971 billion yuan. 3) The gross margin improved by 2.41pct year on year to 34.38%, and the net profit margin remained flat at 22.42% year on year.
The operation is steady as always, the operation maintains the leading level of the industry, and the international business is actively developed.
1) By the end of the 2024H1 period, the company had put into operation 0.0415 million tons of holding projects and 0.01,585 million tons of shareholding projects. 2) The holding project's garbage disposal volume increased 11% year on year to 7.535 million tons; steam sales increased 32% year on year to 0.47 million tons. 3) The average power generation capacity of the company's wholly-owned and controlled projects is 413.5 kilowatts of waste per ton (excluding heating units), and the average plant electricity consumption rate is 11.84% (excluding heating units), continuing to maintain the leading level in the industry. 4) In terms of international business, the company is actively expanding: ① 2024H1 successfully renewed the third round license agreement with Martin of Germany.
② On May 6, the company and the French SUEZ Group signed a “Comprehensive Strategic Cooperation Framework Agreement”. The two sides will work to complement each other's advantages in the international market and promote innovation in the global solid waste field.
③ In the first half of the year, the company collaborated with partners to expand further in various market regions around the world and signed a total supply contract of about 0.5 billion yuan for complete waste incineration equipment.
The downward trend in capital expenditure is clear, and cash flow continues to improve. 1) 2024H1's capital expenditure was 0.37 billion yuan, compared to 0.648 billion yuan in the same period in 2023. Currently, the company is constructing and preparing to construct 3,900 tons of incineration projects, of which 2,700 tons are holding projects. As stock projects are gradually put into operation, the trend of capital expenditure contraction is clear. 2) Net cash flow from operating activities was 1.129 billion yuan, an increase of 27% over the previous year, with sufficient cash flow. It is expected that dividends will gradually increase after capital expenditure falls.
Risk warning: Project progress falls short of expectations, industry policy changes, etc.