\u3000\u3 Shengda Resources Co.Ltd(000603) 359 Dongzhu Ecological Environment Protection Co.Ltd(603359) )
Events
1) on April 28, 2022, Dongzhu Ecological Environment Protection Co.Ltd(603359) released the annual report of 2021 & the report of the first quarter of 2022. In 2021, the company achieved a revenue of 2.711 billion yuan, a year-on-year increase of + 15.95%; In 2021, the net profit attributable to the parent company was 481 million yuan, a year-on-year increase of + 26.40%. In a single quarter, Q4 achieved a revenue of 920 million yuan in 2021, a month on month increase of + 79.18% and a year-on-year increase of + 57.54%; The net profit attributable to the parent company was 121 million yuan, a month on month increase of + 45.85% and a year-on-year increase of + 280.86%. In 2022, Q1 achieved a revenue of 430 million yuan, a year-on-year increase of – 17.91%; The net profit attributable to the parent company was 82 million yuan, a year-on-year increase of – 18.07%. 2) Since 2022, the company and its subsidiaries have won 2 new bid projects (1 Ecological Restoration business + 1 municipal landscape business), with a total bid winning amount of 601 million yuan, a year-on-year increase of + 244.44%; In the same period, the company and its subsidiaries signed 4 new contracts (2 ecological restoration businesses + 2 municipal landscape businesses), with a total project amount of 1.81 billion yuan, a year-on-year increase of + 279.72%.
Comments
In 2021, the company achieved steady growth in revenue and performance, and the performance growth exceeded market expectations. The main reason is that under the dual carbon background, the demand for ecological and environmental protection increased, the revitalization of new rural areas and the acceleration of emerging infrastructure markets, and the two traditional business lines of ecological restoration and municipal landscape of the company moved forward together. Q1 revenue and performance decreased slightly year-on-year in 2022. It is judged that the reason is that it is slightly affected by the epidemic in the short term, but the impact is small. We believe that the company has sufficient orders on hand and is still in the implementation period of the employee stock ownership plan for 22 years. It is not difficult for the company to achieve steady growth of expected performance and ensure the unlocking conditions of the stock ownership plan. The total growth rate of the company’s newly won bid and newly signed contract increased by 270.27% year-on-year, of which the amount of newly won bid and newly signed contract increased by + 244.44% / + 279.72% year-on-year respectively, which reflects that under China’s current economic situation, the investment in infrastructure construction projects is in the trend of vigorous development, and the growth of the company’s revenue and performance will be effectively guaranteed.
Profitability was strengthened year-on-year, and the balance sheet side performed well. 1. In terms of profitability, the company achieved a gross profit margin of 29.69% in 2021, with a year-on-year increase of + 0.73pct, of which the gross profit margins of ecological restoration / municipal landscape were 29.96% / 29.93%, with a year-on-year increase of + 1.43pct / + 1.56pct respectively. The company’s expenses are well controlled. In 2021, the management / R & D / financial expense rate was 3.42% / 3.14% / – 3.12% respectively, and the expense rate during the period was 3.43%, with a year-on-year rate of -2.76pct. The main reason is that the financial expenses of the company were greatly reduced due to the confirmation of some deposit interests during the reporting period and the confirmation of interest and investment return during the construction period of audited investment and financing projects. Driven by the increase of gross profit margin and the decrease of expense rate during the period, the company achieved a net profit rate of 17.73%, a year-on-year increase of + 0.94pct. Meanwhile, the company’s roe reached 14.10%, a year-on-year increase of + 1.70pct. Overall, the company’s profitability has been strengthened year-on-year. 2. From the balance sheet side, 1) the asset liability ratio increased to 60.02% in 2021, which is still at a low level in the industry, and the liability items are mainly composed of payable items, indicating that the company is in a strong position in the industrial chain; 2) As of H1 of 2021, the company had no interest bearing liabilities. By the end of 2021, the interest bearing liability ratio of the company was 5.14%, which was mainly due to the increase in the number of trunk road projects along the river at Hangzhou G20 summit and the requirement to accelerate the completion. The interest bearing liability ratio of the company was still at the lowest level in the industry; 3) Major shareholders have no equity pledge.
The main business of ecological restoration and municipal landscape infrastructure construction is booming. The company’s total unfinished orders are about 6-7 billion yuan. Since 2022, the total growth rate of the two amounts of newly won bids and newly signed contracts has increased by 270.27% year-on-year. In terms of orders on hand, as of Q1 2022, the company’s total outstanding orders on hand were about 6-7 billion yuan. From the perspective of new orders, since 2022, the company and its subsidiaries have won 2 new bid projects (1 Ecological Restoration business + 1 municipal landscape business), with a total bid winning amount of 601 million yuan, a year-on-year increase of + 244.44%; In the same period, the company and its subsidiaries signed 4 new contracts (2 ecological restoration businesses + 2 municipal landscape businesses), with a total project amount of 1.81 billion yuan, a year-on-year increase of + 279.72%. Since the beginning of 2022, the company’s new bid winning and newly signed contract amount have achieved rapid growth year-on-year, accelerating the continuous growth of the company’s future performance. In addition, in 2021, the company and its subsidiaries won 16 new bid projects, with a total bid amount of 2.884 billion yuan, a year-on-year increase of + 48.66%. In 2021, the company and its subsidiaries signed 16 new project contracts, with a total project amount of 2.355 billion yuan, a year-on-year increase of + 24.87%. With the rapid expansion of forestry resources, carbon sequestration business will benefit from the progress of implementation and the restart of CCER. Relying on the advantages of market, team, capital and cooperation, the company has rapidly and deeply arranged the forest carbon business. In October last year, the company became the only forestry enterprise selected among the 100 constituent stocks of the carbon neutralization index of Shanghai central stock exchange. From the perspective of the development process of the company’s forestry resources, the company’s forestry resources have expanded rapidly. In November last year, the company signed a cooperation agreement on carbon sequestration development of far more than 5 million mu of forest resources with Sichuan Changjiang Afforestation Bureau; Signed a strategic cooperation framework agreement with the people’s Government of Ninghua County in December last year (forest land area of about 2.79 million mu); Signed a strategic cooperation agreement with the people’s Government of Yongde County (about 3.3 million mu of forest land area) and the people’s Government of Yongde County in January this year; In February this year, it signed the project investment framework agreement with Luzhou Aviation Development Group Co., Ltd. (the forest land area is about 9.2 million mu). The company’s forestry carbon sequestration development projects are expected to take root one after another. From a policy perspective, both Shanghai Environmental Exchange and Beijing Green Exchange have publicly announced that CCER is expected to restart this year, and the company’s carbon sequestration business will benefit from the restart of CCER. From the rising trend of carbon price, with the continuous construction and improvement of China’s unified carbon market, the gradual release of CCER development on the supply side, the expansion of demand side and the continuous integration of institutional investors into the carbon financial investment market, the carbon price is expected to continue to rise with great potential.
Investment advice
Considering the steady growth of the company’s traditional business and the accelerated layout of its forest carbon business, we forecast the company’s EPS for 2022 / 23 / 24 to be 1.38/2.00/2.56 yuan respectively. Based on the closing price of 9.57 yuan on April 28, the corresponding PE is 7 / 5 / 4x respectively, maintaining the “strongly recommended” rating.
Risk tips
Order performance is lower than expected; The implementation of the policy is less than expected; The promotion of carbon trading is less than expected.
