47% drop in 1HFY22 net profit, in line with profit warning
- 1HFY22 net profit down 47%, in line with profit warning
- DPS of HK$0.036 was declared with stable payout ratio of 20%
- Economic recovery in 2H will help rebound in treatment fee and treatment volume of hazardous waste treatment
- Inhouse collection of raw stalk to lower unit cost of biomass utilization projects by at least 8% in 2H
- Current rating is BUY with TP under review
China Everbright Greentech (CEG) reported a decline of 47% in net profit to HK$372m in 1HFY22, in line with profit warning. The drop was mainly due to 1) significant increase in unit cost of integrated biomass utilization projects by 15%; 2) unit fuel consumption increased 10%; 3) treatment fee went down by 40% and 10% for landfill and incineration projects respectively. These resulted in drop in PBT margin of 9ppts, despite that revenue declined only 2%. As at end of 1HFY22, net debt to equity ratio nudged up 3ppts to around 129%. Dividend per share of HK$0.036 was declared with stable dividend payout ratio of 20%.
Going forward, we expect net profit to rebound in 2H, driven by lower unit cost of biomass operation and margin enhancement in hazardous waste treatment biz. First, in-house collection of stalk and raw materials for integrated biomass utilization operation will be extended to more regions. In fact, unit consumption of raw stalk already declined 8% in Q2 since commencement of inhouse collection of raw materials. As quality of stalk collected continues to improve, unit consumption will decline, which is positive to margin improvement. Second, as economy recovers in 2H, more industrial activities will trigger more demand for hazardous waste treatment services. In fact, treatment volume of hazardous waste jumped substantially by 94% in 1H and such strong momentum will carry on to 2H. Coupled with rebound in treatment fee, profit contribution from hazardous waste division should increase in 2H.
In terms of business transformation, CEG has successfully secured 100,000 tons end-of-life tyre recycling projects and made maiden move to rooftop solar projects in both Hong Kong and Xuzhou. These will pave the way for the mid to long term development of CEG along with China’s “Dual Carbon” journey.