The target price is 10.97 yuan, maintaining the “buy” rating
Shanghai Environment released its annual report. In 2023, it achieved revenue of 6.381 billion yuan (yoy +1.51%), net profit to mother of 547 million yuan (yoy +5.19%), and deducted non-net profit of 526 million yuan (yoy +6.94%). Among them, Q4 achieved revenue of 2,062 billion yuan (yoy -7.53%, qoq +38.60%) and net profit of 73.7204 million yuan (yoy +12.79%, qoq -56.36%). The company plans to pay a dividend of 0.1 yuan per share, with a dividend ratio of 20.53%, corresponding to a dividend rate of 1.1%. We expect the company's 2024-2026 EPS to be 0.51, 0.54, and 0.57 yuan respectively. Comparatively, the company's 24-year Wind unanimously expected an average PE value of 14.3 times. Considering that the company is the leading solid waste treatment in Shanghai, the project is of high quality. The company was given 21.5 times PE in 24 years, with a target price of 10.97 yuan (previous value of 13.20 yuan), maintaining a “buy” rating.
Solid waste operating revenue increased 3% year on year, and contract and design revenue fell 25% by sector. In 23, the company's solid waste treatment/sewage treatment/contracting and design/environmental service revenue was 42.776/5.14/9.89/583 billion yuan, respectively, +7/-3/-25/ +31% year-on-year. In the solid waste treatment business, the revenue of solid waste operation/BOT under construction was approximately 36.80/596 million yuan, +3%/+47% year-on-year. Bots under construction accounted for +3pp to 9% of total revenue in '23.
Feed-in power/sewage treatment volume decreased by 6/ 18% year-on-year
By the end of '23, the company had operated 27 domestic waste incineration projects, totaling 14.02 million tons of factory waste (including the commissioned Laogang Phase I and Phase II), a slight increase over the previous year (13.98 million tons in '22), and the feed-in electricity volume was 4.637 billion kilowatts, or -6.0% over the same period last year. The annual volume of solid waste landfill was 102,900 tons, 1.3776 million tons of transit garbage, 72,500 tons of medical waste collected, transported and disposed of, and 86,700 tons of hazardous waste. The company operates 7 sewage treatment plants (3 of which have been officially operated by the company since December 2023), treating a total of 364 million tons of sewage, or -18.0% over the same period last year.
The cost ratio for the period was -0.3 pp, and the net cash flow from operating activities was -0.3 pp to 6.7% year over year, +0.1/0.3 pp, as long as it was due to increased market development expenses and labor costs; the R&D expenses ratio was 1.6%, which remained the same; financial expenses were -11.75% to 345 million yuan, mainly due to a special decrease in loan interest rates. The financial expenses ratio was -0.8pp to 5.4% year over year, driving the period expense ratio -0.3pp to 14.0% year over year. Accounts receivable for 23 years were +20.9% to $2,947 million, and contract assets were -36.1% to 341 million yuan, mainly due to a decrease in completed and unsettled projects. Other equity instruments invested 195 million yuan (none in 22 years), formed a closed infrastructure securities investment fund for the company headquarters to purchase Guotai Junan City Investment to buy affordable rental housing. Net cash flow from operating activities was $1,220 million, -31.7% YoY.
Risk warning: Payment progress falls short of expectations, waste incineration and sewage treatment operating costs have risen, and the “Environmental Treatment +” business expansion falls short of expectations.