\u3000\u3 Guocheng Mining Co.Ltd(000688) 156 Road Environment Technology Co.Ltd(688156) )
Key investment points
Event: in 2021, the company achieved a revenue of 382 million yuan, an increase of 52.56% and a net profit attributable to the parent company of 76 million yuan, an increase of 58.23%, in line with our expectations; In 2022, Q1 achieved a revenue of 57 million yuan, an increase of 15.41% and a net profit attributable to the parent company of 3.8422 million yuan, a decrease of 54.18%.
The utilization of distiller’s grains was strong, accounting for 30%, and the traditional mud was steadily promoted. In 2021, the company’s revenue growth was mainly due to the strong efforts in Baijiu distillers’ feed business, and the steady growth of traditional river and mud business. 1) the growth momentum of Baijiu feed business was adequate, and the feed income of distillers grains and grains in 2021 was 114 million yuan, increasing by 114.49%. The proportion of revenue increased by 8.59 PCT to 29.76%, and the gross profit margin increased by 29.43% and 5.87 PCT. The company’s distiller’s grains feed products entered the period of rapid market penetration after long-term technical improvement & product upgrading. In 2021, the sales volume of distiller’s grains feed reached 57500 tons, an increase of 108.16% and the production and marketing rate reached 100.22%. 2) The service of river lake sludge increased steadily. In 2021, the revenue of river lake sludge was 215 million yuan, an increase of 70.96%, the gross profit rate was 39.52%, and a decrease of 9.56 PCT, which was mainly contributed by the new xiaoyinyong project in Zhongshan City, Guangdong Province and the comprehensive improvement of water environment in Jinshan new city, Huizhou City. 3) The engineering mud service has entered a stable operation period. In 2021, the engineering mud revenue will be 46 million yuan, with a decrease of 34.14%, and the gross profit margin will be 47.86%, with a decrease of 5.76 PCT.
2022q1 performance is under pressure, and the epidemic has a negative impact on the project progress & R & D expenses rise. The main reasons for the performance decline of 2022q1 company are as follows: 1) the epidemic has a negative impact on the project progress: due to the repeated impact of the epidemic, the mobilization of traditional sludge and mud projects is blocked and the acceptance and settlement are delayed; 2) R & D expenses go up. The company promoted the application of ammonia alkali residue treatment technology and equipment & improving the performance of distiller’s grains feed products, and the R & D expense rate increased by 4.3pct to 8.46% in 2022q1; 3) The income from asset disposal decreased.
The return of accounts receivable drives the continuous improvement of operating cash flow. In 2021, the company’s net cash flow from operating activities was 45 million yuan, an increase of 90.46%, and in 2022q1, the net cash flow from operating activities was 14 million yuan, an increase of 230.61%. The company continued to strengthen the collection of accounts receivable and improve the level of cash flow.
The expansion of distiller’s grains resources is imminent, and the advantages of technology, channel and product consolidate their position. 1) Deep ploughing, rich R & D patents and effective technology industrialization. 2) Regional card position & channel binding, occupying the first mover advantage of the industry. a. Reserve scarce land resources; b. Distiller’s grains are directly harvested upstream, and long-term cooperation is signed to ensure incoming materials; c. Downstream customers spread all over the country and entered the list of major customers and suppliers for stable cooperation. 3) High cost performance & functional value, feed product price & market penetration has great room for improvement. The company’s products have a strong competitive advantage over common feed raw materials such as corn and soybean meal, and there is a large room for the improvement of product price and market penetration. Considering the rising cost and other factors, the company will increase the ex factory price of all products by 100 yuan / ton from March 1, 2022. 4) The planned feed capacity is 300000 tons, more than 4 times expanded, and the profitability of typical projects is strong. The company plans to achieve 300000 tons of distiller’s grains feed capacity in 2023, more than four times the capacity expansion compared with 2021. The net interest rate of full production of typical projects is 21.75% and roe37%. Other organic Baijiu such as aromatic liquor, insect protein and so on are expected to open up room for growth.
Profit forecast and investment rating: considering the delayed project progress caused by covid-19 epidemic, we lowered the net profit attributable to the parent company from 105 / 171 million yuan to 81 / 142 million yuan in 20222023. It is expected that the net profit attributable to the parent company in 2024 will be 189 million yuan, corresponding to 20, 12 and 9 times PE, maintaining the “buy” rating.
Risk warning: the order of river and lake sludge is less than expected, the price fluctuation risk of raw materials, and the expansion of the project is lower than expected.
