Introduction to this report:
Solid waste was operating steadily in 2023, but the renewable resources business was under pressure, and preparations for inventory price reduction and goodwill impairment preparations in the lithium battery sector dragged down performance. The impact of the relocation of the main recycled rubber plant is still being eliminated, and improvements are expected in 2024.
Key points of investment:
Maintain an “Overweight” rating. We maintain the company's projected net profit for 2024-2025 and 2026 at 739 million yuan, 8.09 million yuan, and 869 million yuan, corresponding EPS of 1.72, 1.88, and 2.02 yuan, maintaining a target price of 18.92 yuan, and maintaining a “gain” rating.
Lithium battery recycling is dragging down the company's 2023 results. 1) In 2023, the company achieved revenue of 3.178 billion yuan, down 5% year on year; attributable net profit of 603 million yuan, down 17% year on year; deducted net profit of 602 million yuan, down 12% year on year. 2023Q4's revenue in a single quarter was 777 million yuan, down 24% year on year; attributable net profit was 86.59 million yuan, down 54% year on year. 2024Q1's revenue was 786 million yuan, down 9% year on year; attributable net profit was 181 million yuan, up 11% year on year and up 109% month on month. 2) The decline in revenue was mainly due to a decrease in operating income from the lithium battery recycling business and BOT project construction in 2023, and the decline in profit was mainly due to losses in the resource recycling business sector in 2023. 3) The company plans to pay a total cash dividend of 215 million yuan in 2023, with a cash dividend ratio of 35.61%.
Solid waste performance is growing steadily. 1) In 2023, the company has put into operation a total of 21,220 tons of waste incineration and 2,650 tons of food waste. 2) The cumulative amount of garbage stored in 2023 was 9.2369 million tons. The year-on-year increase was 4%.
The heating capacity was 1.04 million tons, an increase of 4% over the previous year. Food waste was 738,300 tons, an increase of 19% over the previous year.
The amount of household waste and food waste disposal is growing steadily. Price increases have been completed for 6 waste incineration projects.
The renewable resources business is under pressure and is expected to improve in 2024. 1) In 2023, lithium battery recycling achieved revenue of 85.66 million yuan, a year-on-year decrease of 65%, gross profit margin -16.28%, accounting for inventory price reduction preparations and goodwill impairment preparations. 2) The recycled rubber business achieved revenue of 103 million yuan and a gross profit margin of -7.41%. The first phase of Huili in Nantong has been officially put into operation, and the second phase has entered trial operation. The impact of the relocation of the main plant is still being eliminated.
Risk warning: Project progress falls short of expectations, sharp fluctuations in commodity prices, etc.