1H22 performance is in line with our expectations
The company announced 1H22 results: revenue of HK $3.479 billion, + 12% year-on-year; net profit of HK $520 million,-5% year-on-year, corresponding to HK18.18 cents per share (diluted), in line with our expectations.
Trend of development
The scale of the business is growing against the trend, and the growth rate of construction revenue in the second half of the year is expected. From the construction point of view, the epidemic affected the progress of enterprise market expansion and project construction, but the company expanded against the trend by virtue of its strong management capacity, implementing two sewage treatment projects and undertaking two entrusted operation projects in the first half of the year, with an additional scale of 101500 cubic meters per day; two projects were completed / put into operation, and three new projects were started, with 16 projects under construction and 12 projects under construction. 1H22's construction service revenue is HK $1.353 billion, + 3% compared with the same period last year. We believe that with the improvement of the epidemic situation and smooth logistics, the company is expected to speed up business expansion and engineering construction, and the growth of construction revenue for the whole year is expected.
Operating income is + 27% compared with the same period last year, and the increase in water price reflects good management ability. From the perspective of operation, 1H22's operating income is HK $1.467 billion, which is + 27% compared with the same period last year, mainly from: 1) the increase in scale:
The company's 1H22 sewage treatment scale is 840 million cubic meters, year-on-year + 4.63%, reclaimed water supply scale is 19 million cubic meters, year-on-year + 31.76%. 2) Water price increases: in the first half of the year, a total of 3 sewage treatment plants were approved to raise water prices, ranging from 3% to 36%. 3) VAT exemption brings about HK $106 million. We believe that the company's continued business expansion is expected to ensure an increase in scale, good management and operation capacity may further help to raise water prices, competitiveness is expected to continue to improve, the market position will continue to be strengthened.
Due to the short-term disturbance of rising prices, it can enhance the ability to reduce costs and make profits in the future. In the first half of the year, the company's electricity price costs rose by about 17%, and pharmaceutical costs rose more, which continued to push up the company's operating costs, resulting in a year-on-year gross profit margin of-5ppt to 35%. We believe that with the introduction of alternative carbon source technology, in-plant photovoltaic test, and actively promote the digital practice of intelligent water, it is expected to continue to reduce operating costs and further improve profitability in the future.
Profit forecast and valuation
The earnings forecast of 2022Universe will remain unchanged at HK $1.255b in 2023. The current H share price corresponds to the price-to-earnings ratio of 3.63 per cent of 2022max in 2023. Maintain the "outperform industry" rating and a target price of HK $2.20, corresponding to a price-to-earnings ratio of 5.03 times earnings in 2022, which is 4.94 times earnings, which is 38.4% higher than the current share price.
Risk
The cost of raw materials continues to rise, and the progress of the project is not ahead of schedule.