Green Power's solid waste operation business is steady. All waste incineration projects have been put into operation. Repayments have improved since the third quarter, and free cash flow is strong. Under the debt conversion policy and user payment trends, the company's free cash flow and dividend levels are expected to continue to increase in the future. We conservatively estimate that the company's A/H share dividend ratio will reach 3.1/6.5% in 2025. For Green Dynamics A/H shares, they all reaffirmed the “buy” rating.

Repayments improved. As of the end of June and the end of September, the company's accounts receivable accounted for about 47/ 39% of accounts receivable. The company's accounts receivable were 2.389 and 2.395 billion yuan respectively. During the third quarter, accounts receivable only increased slightly by 0.3%, and the repayment situation improved. According to the announcement on November 4, the company's accounts receivable as of the end of June accounted for about 47% of the garbage disposal fee, and the national supplement accounted for about 39%. The remaining portion was mainly basic electricity; in terms of account age, the account for less than one year accounted for about 60%, and about 83% within two years. The structure of accounts receivable at the end of September did not change much compared to the end of June.

Free cash flow is expected to grow further

In the first three quarters, the company's net operating cash flow was 1.055 billion yuan, +60.04% year over year, capital expenditure 0.292 billion yuan, year-on-year, -51.92% year-on-year, and free cash flow of 0.763 billion yuan (9M 23:0.051 billion yuan), achieving leapfrog year-on-year growth. Judging from the free cash flow trend, the company's free cash flow in 2023 was 0.256 billion yuan, which was corrected for the first time in history, and 9M24 was further expanded. Under the debt conversion policy and user payment trend, the company's cash flow is expected to grow further in the future, laying a solid foundation for increasing dividends and returns to shareholders.

Insurance capital continues to increase, and steady operation and high dividend value are highlighted

From September 10 to December 5, Great Wall Life increased its holdings of the company's A shares by 0.4 million and H shares by 14.29 million through centralized bidding, increasing its holdings by a total of 14.69 million shares, accounting for 1.05% of the company's total share capital. Great Wall Life's shareholding increased to 0.114 billion shares, accounting for 8.16% of the company's total share capital. Based on our profit forecast, the dividend ratio of 45% for 2025 (the lowest value of the company's dividend plan), and the closing price on December 11, the dividend rate for the company's A/H shares reached 3.1/6.5% in 2025.

Target price for A/H shares is $7.76/HK$4.18

According to the company's three-year dividend plan, we raised the 24-26 dividend ratio to 40/45/ 50%, and adjusted 24-26 net profit to mother of 0/-0.5/ -1.4% to 0.612/0.65/0.686 billion yuan. Comparable companies agree that the 2025 Wind average PE is 11.8 times (11.6 times the previous value). For Green Power A shares (601330CH), considering the high increase in the company's free cash flow and the high dividend plan, we gave 16.5 times the predicted PE for 2025 (16.2 times the previous value), and the corresponding target price was RMB 7.76 (previous value RMB 7.61), reaffirming the “purchase”. For Green Power H shares (1330 HK), due to the low liquidity of the stock in the Hong Kong stock market, we gave 8.3 times the predicted PE for 2025 (8.1 times the previous value), and the corresponding target price was 4.18 HKD (previous value 4.14 HKD) to repeat the “purchase”.

Risk warning: Waste disposal volume and feed-in electricity are lower than expected, gross margin of solid waste treatment is lower than expected, construction revenue decline exceeds expectations, and impairment of accounts receivable exceeds expectations