2024Q1 revenue is growing steadily, and the biofermentation business is regarded as an important direction for new quality productivity, which is expected to benefit the company's revenue of 351 million yuan in 2023, up 2.6% year on year, and net profit to mother of 0.27 million yuan, up 4.0% year on year; of these, 2023Q4 achieved revenue of 120 million yuan, up 6.5% year on year, and net profit to mother of 612,000 yuan, down 77.0% year on year. In 2024Q1, the company achieved revenue of 68 million yuan, a year-on-year increase of 21.9%, and net profit to mother of 5.674 million yuan, an increase of 54.2% over the previous year. The company's downstream demand is under pressure in the short term. We lowered 2024-2025 and added a profit forecast for 2026. We expect net profit to be 0.6 (-0.8), 1.1 (-1.3), and 160 million yuan respectively for 2024-2026, up 129.7%, 79.8%, and 46.5% year-on-year. The current stock price corresponds to PE 26.3, 14.6, and 10.0 times, respectively. The company's lees project reserves are sufficient, and the biological fermentation business continues to advance construction. As an important direction for new quality productivity, the company is expected to continue to benefit and maintain “buy” “Enter” rating.
Traditional environmental protection has been hampered by steady growth in the lees biological feed business. The company's revenue in 2023Q4 increased 6.5%, and 2024Q1 revenue also increased 21.9%. By business, in 2023, the company's lees biological feed business revenue was 197 million yuan, an increase of 24.2% over the same period. With sales volume of 93,300 tons, the 2024Q1 business achieved revenue of 50 million yuan, an increase of 63.0% over the same period, and sales volume of 24,500 tons, mainly due to the establishment of a sales team to increase market development. The company's revenue from the river and lake sludge business in 2023 was 90 million yuan, down 9.46%. Mainly due to the company taking the initiative to reduce some projects, the 2024Q1 business revenue was 7.488 million yuan, an increase of 17.0%. The company's engineering mud business revenue in 2023 was 55 million yuan, a decrease of 33.8%. 2024Q1 achieved revenue of 3.05 million yuan, a decrease of 81.4%, mainly due to the shutdown of construction projects in the surrounding area and a decrease in the amount of mud disposed of. The Lianyungang project is expected to contribute more in the future.
Sales expenses have increased, and profit growth is relatively good
The company's gross margin increased by 2.1 pct year-on-year in 2023Q4, mainly due to project revenue generated by some high-margin environmental protection businesses during the quarter. 2024Q1 gross margin declined by 5.4 pcts year-on-year, mainly due to a decline in the share of traditional environmental protection businesses and an increase in sales volume in the low-margin lees business. In terms of expenses, the company's 2023Q4 and 2024Q1 sales expenses increased by 2.9 pct and 2.2 pct respectively, mainly due to the company setting up sales subsidiaries, increasing sales channel investment, and introducing sales talents. The company's 2023Q4 and 2024Q1 management expense ratios decreased by 7.3 pct and 0.3 pct respectively. Of these, 2023Q4 was due to some pre-management expenses. In terms of net interest rate, the company's 2024Q1 net profit increased 54.2% year on year. The main reason base is low. Looking forward to the future, the lees business is expected to continue to increase in sales as downstream aquaculture demand improves, and new traditional environmental protection business projects will gradually generate profits and achieve steady growth.
Risk warning: the risk of raw material price increases, the competitive landscape increases the risk, and the risk of project implementation falling short of expectations.