Minutes of management meeting
We attended China Conch Venture analysts' meeting and roadshow on April 7. The minutes of the meeting are as follows: 1) benefiting from the substantial increase in disposal capacity, the revenue from solid waste and hazardous waste business is expected to grow by leaps and bounds in 2021-22; 2) due to the increase in the number of start-up projects and the improvement of operational efficiency, the waste power generation business will maintain steady growth and the quality of profitability will continue to improve. 3) Management will seek spin-off opportunities for the two growing businesses (solid waste and hazardous waste and waste power generation) to maximize shareholder value, both of which have been restructured. In view of the increase in the volume of solid waste and hazardous waste treatment, the improvement of the operating performance of waste power generation business and the expansion of the income of associated companies. We predict that the annual EPS in 21-22-23 will be RMB 4.65, RMB 4.85, respectively.
Increase the target price based on the SOTP method by 15% to HK $52. 0. Maintain "buy".
The expansion of production capacity of solid waste and dangerous waste business is ahead of schedule.
The number of new projects signed by the company in the past year (3.23 million tons / year) is strong, and it has obtained 8.95 million tons / year of solid waste and hazardous waste projects by 2020, and is likely to achieve the five-year target ahead of schedule (2023 to 10 million tons / year). Through establishing a strong alliance with leading cement manufacturers, the company has obtained 34% of China's cement production capacity, which, if fully utilized, can be converted into 2600 million tons of solid waste and hazardous waste capacity per year, and is expected to establish its leading position in the industry. In view of 1) the new project is entering a mature stage (utilization:
70-80%) it will take a year of climbing; 2) the company is stepping up efforts to expand garbage collection channels; and 3) the decline in garbage production caused by the outbreak in 2020 is only temporary. We do not think there is no need to worry too much about the low utilization rate at this stage, taking into account the rapid expansion of production capacity.
The profit of garbage power generation business is growing steadily, and the profit quality is getting better.
The company signed a garbage power generation project of 3.2 million tons / year in 2020, and the signed production capacity has been increased to 1300 million tons / year by 2020, and is expected to achieve the target of 1800 million tons / year signed capacity in 2023 as scheduled. With the stabilization of capacity growth (compared with the accelerated growth in previous years), the increase in the number of projects in production and the improvement of business performance (the efficiency of garbage power generation has improved, the proportion of large-scale projects has expanded and the level of project management has improved), we expect the profit quality of the waste power generation business to improve and the net profit to increase steadily. This is because in terms of the cycle of waste power generation projects, the contribution of operational services and financing services to gross profits is more sustainable than construction services, and we expect the contribution to grow from 44% in 2020 to 75% in 2023.
Risk hint: the downside risk is that the climbing progress of the environmental protection project is not as good as we expected.