The sharp decline in construction revenue caused the company's 2021H1 performance to be slightly lower than expected. The growth and decline of construction and operation led to the continuous improvement of revenue quality, and the proportion of operating income H1 increased to 70% compared with the same period last year. The company's stock biomass investment is coming to an end and is seeking to lay out new carbon-neutral businesses to lead the transformation and create new growth points. Downgrade the construction revenue forecast and downgrade the 2021-2023 EPS forecast to HK $0.65, 0.71 and 0.76, corresponding to the current price of PBank E, which is respectively times that of 4-4-3, maintaining the company's "buy" rating, with a target price of HK $3.90.
H1 performance was slightly lower than expected. Company H1 realized operating income of HK $4.319 billion, up 2% from the same period last year; realized net profit of HK $702 million, down 15% from the same period last year; and translated into basic earnings per share of HK $0.34.
In addition, the company intends to pay an interim dividend of HK $0.07 per share. H1 performance was slightly lower than expected, mainly due to a significant decline in revenue from the company's construction services (down 36% from the same period last year).
The operation has made efforts to improve the quality of earnings and continuously adjust the electricity / heat ratio to hedge the impact of policy. The weakening of the impact of the epidemic and the successive commissioning of the project have promoted the significant increase in the amount of biomass and hazardous waste disposal of the company H1. The biomass and domestic waste disposal capacity of the H1 company is 3.752 million tons and 1.664 million tons respectively, an increase of 30% and 55% over the same period last year. The online electricity of the company H1 increased by 15% to 2.89 billion kWh, and the company H1 hazardous waste and solid waste disposal capacity increased by 104000 tons, an increase of 30% over the same period last year. The growth of processing scale contributed to the outstanding performance of the operating business, with H1 operating revenue rising 26% year-on-year to HK $3.02 billion. The company's construction business was affected by the end of investment in hand-made materials projects, with H1 construction revenue falling 36 per cent year-on-year to HK $1.12 billion. The growth and decline of construction and operation has promoted the operation business to account for 70% of the company's overall H1 revenue, and the trend of continuous improvement in the quality of earnings is clear. In order to deal with the impact of the adjustment policy of biomass subsidies, the company has continued its heating business in recent years and achieved good results. The steam volume of H1 company has increased by 80% to 1.059 million tons compared with the same period last year, which is significantly faster than that of biomass treatment in the same period. we expect the company to continue to expand biomass heating in the future.
The stock of biomass investment is coming to an end, accelerating the layout of carbon neutralization new business. By the end of 2021H1, the company has completed a total of 49 biomass comprehensive utilization projects, and there is only one project under construction. With the policy adjustment and project construction coming to an end, the company is seeking new business areas to create new sources of growth. The company's traditional biomass business has accelerated its transformation to a high value-added direction, and the development of the heating market has been continuously promoted; the business of hazardous waste and solid waste disposal has been steadily transformed to an industrial environmental protection service provider, and the disposal layout of waste tires has begun to take shape. Carbon neutralization, integrated light storage and charging, power battery recycling and other technology research and development work is also actively promoted. In addition, the company has made preparations for carbon assets accounting and inventory, and eight biomass comprehensive utilization projects have completed CCER development (but have not yet completed certification and filing), and it is expected that new sources of income will be created after the liberalization of carbon market participation in the future.
Risk factors: higher-than-expected adjustment of subsidy policy; substantial increase in fuel collection costs; decline in volume / price of industrial waste.
Investment suggestion: considering that the company's 2021H1 project revenue has declined significantly and the current scale of projects under construction has been relatively small, we downgrade the 2021 / 2023 project revenue forecast and correspondingly reduce the 2021 / 2023 EPS forecast by 20.77% / 22.69% / 15.04% to 0.65 / 0.71 / 0.76 Hong Kong dollars, and the current share price corresponding to EPS E is respectively times that of 4-4-3. Reference to comparable companies to give 2021 6 times the target Pmax E, corresponding to the target price of HK $3.90, maintaining a "buy" rating.