Dynagreen Environmental Protection Group Co.Ltd(601330) (601330)
Waste incineration is the first a + H-share listed company, and the state-owned assets background helps the rapid expansion of business. The company has been deeply engaged in solid waste disposal for more than 20 years. It is the first a + H listed company in the industry. Its business radiates across the country and ranks in the forefront of the industry. In 2005, Beijing state owned assets Corporation increased its capital and obtained 61.16% equity. State owned capital laid a solid foundation for the development of the company.
The performance of net operating assets continued to increase, and the net interest rate of fixed increase and reduction of bonds, which is to improve the efficiency of operation, increased. The company focuses on BOT operation services, does not recognize construction revenue, and is financially sound. From 2017 to 2020, the compound growth rate of the company’s net profit attributable to the parent company reached 28%. The profitability of 2021q1-3 was significantly improved, and the net profit margin increased by 6.42pct to 33.28% at the same time, mainly due to 1) the continuous improvement of project efficiency and income: the gross profit margin of 2021q1-3 increased by 2.69pct to 60.89% at the same time, and 2) fixed increase and reduction of debt and fees: after the fixed increase in 2020, the debt ratio decreased to 67%, the financial pressure was reduced, and the financial expense ratio of 2021q1-3 decreased by 2.79pct to 16.72% at the same time;
Rigid expansion of waste incineration industry, rationalization of business model & improvement of cash flow. 1) The industry is rigidly expanded, and the compound growth rate of waste incineration in the 14th five year plan is 9%. In 2019, the capacity of waste incineration in hand is cr1060%, and the strong is always strong. 2) The implementation of the new national subsidy policy gives priority to the new and old, and the low price is given priority. It is difficult to pay the waste treatment fee from the favorable price to the C-end per capita. The bidding promotes the rationalization of the C-end of the business model, and the stock subsidy is expected to accelerate the distribution and improve the cash flow; 3) The carbon reduction effect of waste incineration is significant, and CCER contributes 12% profit elasticity, which is expected to hedge the national subsidy. Green power transaction was included in the first batch of wind power photovoltaic. Under the dislocation competition, the approval of waste incineration power generation is expected to be accelerated after CCER restart. 4) The capital expenditure of the industry has decreased. In 2020, the capital expenditure of new waste incineration projects will be reduced by about 30%, and the free cash flow will be improved soon.
“New signing + acquisition” midwifery can expand rapidly, and the project has significant location advantages and excellent quality. From 2015 to 2020, the compound growth rate of the company’s waste incineration operation capacity was 35%. By the end of 2020, the capacity in hand ranked second among listed companies. As of 2021h1, the company’s capacity in operation, under construction and preparation reached 28900 tons / day, 82000 tons / day and 17600 tons / day respectively, and the space for projects under preparation was doubled. 1) Reconstruction and expansion capacity accounts for more than half: Reconstruction and expansion and phase II account for 57% of the planned capacity, and the scale effect helps accelerate the improvement of operation efficiency. 2) Significant location advantages: the project is concentrated in economically developed areas such as East China and South China, with sufficient waste and high calorific value. As of 2021h1, the capacity of the first and second tier cities (including the new first tier) in the projects put into operation accounted for 53%. Under the downward trend of the market, the capacity of the first and second tier cities (including the new first tier) in the projects under preparation accounted for 42%.
Full production of high-quality projects & large grate R & D drives the leapfrog improvement of ton power generation. The average ton production of the company’s projects has experienced two stepped growth, with a simultaneous increase of 12% to 328 degrees / ton in 2017 and 13% to 369 degrees / ton in 2020. It is mainly driven by the full production of high-quality projects in developed regions such as Huizhou, Shantou and Haining; 2) Following the trend of large-scale projects, the company has achieved results in the research and development of large grate, and gradually completed the design, manufacturing and installation of 600t and 800t incinerators. With the full production of Zhejiang Yongjia phase II, Pingyang phase II and Guangdong Huizhou phase II projects put into operation in 2021 and the promotion of research and development of 1000 ton grate, the company’s average ton production is expected to further increase.
The scale of straw incineration was stable, the gross profit margin increased, and the business expansion of solid waste collaborative disposal achieved fruitful results. Lower purchase price & improved operation efficiency, and the gross profit margin of straw incineration business will be positive to 11.29% in 2020. The company actively expands the collaborative disposal of solid waste, and has won 7 kitchen disposal and 4 collaborative heating projects.
Profit forecast and investment rating: the company will complete the fixed increase and decrease of bonds and increase profits in 2020. Considering the progress of project production and the improvement of operation efficiency, we estimate that the net profit attributable to the parent company from 2021 to 2023 will be RMB 789 / 1016 / 1245 million respectively, with a same increase of 56.76% / 28.78% / 22.54%, and EPS will be RMB 0.57/0.73/0.89 respectively, corresponding to 19 / 15 / 12 times PE. It will be covered for the first time and given a “buy” rating.
Risk tip: the project progress is not as expected, policy risk, financial risk and intensified industry competition.
