Key points of investment:
The company started with self-leachate and has now grown into a comprehensive service provider for the water environment and solid waste, and its historical performance is growing rapidly. Tianyuan Group, the majority shareholder of the company, holds 34% of the shares, the actual controllers are Huang Kaiming's family, and Konka Group, the second largest shareholder, holds 15% of the shares. The company's revenue CAGR in the past 4 years has reached 48%, and net profit CAGR has reached 53%. In 2022, the company's revenue was 1,272 million yuan, net profit was 202 million yuan, and ROE was 10%. As of 23Q3, the company had abundant cash assets in hand ($1,952 million, accounting for 76% of net assets), and the debt ratio was around 49%.
Relying on the rapid expansion of core advantages such as technology+brand+integrated services, the company has received an order of 5.2 billion dollars to ensure the continued growth of the company's main environmental protection business. China's sewage and waste incineration industry as a whole has entered a mature period, but there are still certain structural opportunities. For example, the 14th Five-Year Plan of the State proposes adding 12 million square meters per day of sewage treatment, 10 million square meters per day of recycled water, and 20,000 tons/day of sludge disposal. At the same time, there are still shortcomings in waste incineration in counties. In this context, the company has been deeply involved in the environmental protection industry for more than ten years. It is a national specialized new and small giant enterprise. Many of its self-developed technologies have been awarded international advanced. At the same time, the company has integrated and diversified service capabilities and efficient and professional after-sales, which can respond quickly to customer needs, combine the company's financing advantages, and the company is growing rapidly. As of November 2023, the company has sales orders of 5.2 billion yuan, mainly involving waste incineration and water environment management.
In addition, the company is currently actively expanding projects related to photovoltaics and semiconductor wastewater, and is also collaborating with Huake to develop technologies such as fly ash to help the company's long-term development.
A new Tianyuan Energy subsidiary was established to expand photovoltaic wind power, rely on photovoltaic+sewage, photovoltaic+landfill, etc. to achieve cost reduction and efficiency, while also developing charging stations and energy storage businesses. On August 28, 2023, the company announced the establishment of Wuhan Tianyuan Energy Co., Ltd. to expand photovoltaic and wind power business, while also developing charging piles and energy storage business and expanding the field of hydrogen energy. The company operates more than 10 sewage plants. Through the development of photovoltaic+sewage plants, the company can effectively reduce the company's sewage operating costs and help green development. In addition, landfills are gradually being closed, and policies were introduced in 2022 to encourage the landfill+photovoltaic wind power business model. The company traditionally specializes in landfill leachate, and future development of landfill photovoltaic business has an innate advantage. According to our preliminary estimates, China's landfill resources have reached 3,510, and the landfill+photovoltaic wind power business has broad prospects. In the future, the company will also rely on customer resources to expand photovoltaics, wind power and other businesses. On October 9, 2023, the company announced the establishment of a new energy industry partnership fund to further develop new energy.
Investment analysis opinion: We expect the company's net profit from 2023-25 to be 3.05/3.85/495 billion yuan respectively, YOY is 51%, 26%, and 29%, and the current market value corresponding to the company's 23-25 PE is 16/12/10 times. Referring to the average valuation level of comparable companies in 2023, taking into account the rapid development of the company's main business, and the cost reduction and efficiency brought about by the superposition of the new energy industry layout, we gave the company a valuation of 20 times in 2023, with a target market value of 6.1 billion yuan. Compared with the latest market value, there is room for 28% increase, coverage for the first time, and a “buy” rating.
Risk warning: Project progress falls short of expectations, new orders fall short of expectations, new business development falls short of expectations, pressure on accounts receivable is rising, and production progress of new operating assets falls short of expectations.