Everbright Environmental released its 2024 semi-annual report. 2024H1 achieved operating income of HK$15.612 billion, or -4% YoY; net profit to mother of HK$2.454 billion, or -12% YoY.

The share of operating revenue increased, and the mid-term dividend payout ratio increased to 35%. Everbright Environmental released its 2024 semi-annual report. 2024H1 achieved operating income of HK$15.612 billion, or -4% YoY; net profit to mother of HK$2.454 billion, or -12% YoY. Among them, revenue from operating services was HK$9.46 billion, -0.3%, accounting for 61% of main revenue, +3pct; revenue from construction services was HK$3.58 billion, -13%, accounting for 23% of main revenue, or -2pct year on year; and financial revenue of 2.57 billion yuan, -4% year-on-year, accounting for 16% of main revenue and -1 pct year on year. The company plans to distribute an interim dividend of HK$0.14 per share, with a dividend payout ratio of 35%, +4pct.

The number of projects under construction has decreased, and the revenue structure of the water sector has been adjusted, affecting overall performance. 1) Environmental energy:

The waste disposal capacity of the 2024H1 environmental energy sector was 25.978 million tons, +9% year-on-year, and 8.395 billion kilowatt-hours of feed-in electricity, +6%; achieved EBITDA of HK$4.015 billion, a year-on-year decrease of 15%; contributed to the Group's net profit of HK$2.301 billion, down 16% year on year; the decrease in profit was mainly due to a decrease in the number of projects under construction compared to the same period last year, leading to a decrease in construction service profits. 2) Environmental Water: The 2024H1 environmental water sector's sewage treatment volume was 0.835 billion cubic meters, -1%; achieved EBITDA of HK$1.2 billion, a year-on-year decrease of 7%; contributed to the Group's net profit of HK$0.427 billion, a year-on-year decrease of 7%; the decrease in profit was mainly due to 2023H1 confirming one-time operating income from retroactive water rate increases, while 2024H1 did not have this revenue. 3) Green environmental protection: The 2024H1 green sector's garbage disposal capacity was 2.057 million tons, +16%; biomass raw material processing capacity was 3.883 million tons, +4%; hazardous waste disposal volume was 0.247 million tons, +33%; steam supply was 1.707 million tons, +22% year over year; feed-in electricity capacity was 3.335 billion kilowatt-hours, +3% year over year; achieved EBITDA of HK$1.108 billion, a year-on-year decrease 13%; contributed to the Group's net profit of HK$0.108 billion, a year-on-year decrease of 45%; the decrease in profit was mainly due to a decrease in construction service profits due to a decrease in the number of projects under construction.

The repayment situation improved, and free cash flow was positive. On March 12, 2024, 16 agricultural and forestry biomass power generation project companies under the Green Environmental Protection Notice received a settlement notice from the State Grid Corporation on additional subsidy funds for renewable energy electricity prices. The total settlement amount was 1.534 billion yuan. The total settlement amount was 1.377 billion yuan. The repayment situation improved markedly. The adjusted net operating cash flow of 2024H1 was HK$3.75 billion, capital expenditure was HK$2.779 billion, and free cash flow was HK$0.971 billion, which was corrected as scheduled.

Profit forecasting and valuation. The waste-to-energy business has entered a mature period of operation, and the company's capital expenditure is declining, and cash flow can be expected to return; the profitability of the sewage sector is expected to increase, and the green environmental protection sector is actively exploring comprehensive energy management and resource utilization to create new growth points. Considering that the company's construction service revenue has declined a lot, the company's 2024-2026 net profit forecast was reduced to HK$4.115, 4.248, and 4.398 billion, up -7%, 3%, and 4% year over year; EPS was 0.67, 0.69, and HK$0.72 respectively; the PE corresponding to the current stock price was 5.1x, 5.0x, and 4.8x, respectively, maintaining the “gain” rating.

Risk warning: Project progress falls short of expectations, subsidy recovery falls short of expectations, and industry competition intensifies.