The revenue of the biomass sector will mainly come from operation, and the profit quality will be improved. With the landing of the subsidy policy related to biomass power generation, the layout of the company's biomass projects has been adjusted to a certain extent, and the projects under construction and preparatory construction will be greatly reduced in the future. it means that the construction income from the biomass sector will decline significantly, at the same time, in order to ensure profitability and cash flow. There will be more operation projects in the form of cogeneration. In the future, the revenue and profits of the biomass sector will mainly come from the operation business, and the profit quality is expected to be improved.
It will take time to repair the dangerous waste plate.
In terms of hazardous waste operation, as the negative impact of the epidemic on upstream waste enterprises has not completely dissipated, the handling capacity has not fully recovered, there is still some pressure on prices, and the recovery rate may be slower than we had expected; in terms of hazardous waste construction, the rate of expansion has also slowed down throughout the year. However, in the long run, we remain optimistic about the hazardous sector, mainly considering that the company still has a large number of projects on hand, and the overall business growth will be driven by the launch of new projects.
Diversified financing mode, national carbon emissions trading market opens
The company is actively exploring diversified financing methods. Recently, the company has successfully issued the country's first carbon neutralization and rural revitalization green panda medium-term note, with a principal of 1 billion yuan and a coupon rate of 3.5%. The proceeds will be used to repay project loans for agricultural and forestry biomass projects, which will help to improve the company's asset-liability structure. We note that the national carbon emissions trading market was launched on July 16. according to the data released by the Shanghai Environmental Energy Exchange, the turnover in the first nine trading days exceeded 5.8 million tons, with an average transaction price of more than 50 yuan per ton. According to the company data, the Dangshan biomass power generation project has registered the CDM project, which can bring the company no less than 10 million yuan in carbon emission reduction revenue every year. We believe that other qualified projects of the company will also have the opportunity to participate in carbon emissions trading in the future.
Adjust the target price to HK $3.8 and maintain the buy rating
According to the company's future strategic layout and project development plan, we have adjusted some of the assumptions of the biomass and hazardous waste sector. we expect the company's revenue forecast for the next three years to be HK $8.52 billion, HK $9.27 billion and HK $10.66 billion, respectively. The net profit is HK $1.31 billion, HK $15.0 and HK $1.51 billion, respectively. Based on the same valuation hub of 6 times PE in 2021, we have adjusted our target price for the next 12 months to HK $3.80 to maintain our buy rating.
Risk factors
The start of construction is not as expected, the impact of subsidy policy, and the fluctuation of raw material prices.