According to Zhito Finance APP, CICC released a research report stating that it gives ceb greentech (01257) a "neutral" rating, expecting the company's net income for 2024-2025 to be -0.2 billion Hong Kong dollars and 0.04 billion Hong Kong dollars respectively, with EPS at -0.1 yuan and 0.02 yuan, and a target price of 0.85 Hong Kong dollars. The company's transformation has already shown results, but considering the ongoing impairment pressure from hazardous waste, the profitability of biomass power generation needs to continue improving.

CICC's main points are as follows:

The operational transformation has begun to show results, with operating income accounting for over 80% in 2023.

The company mainly engages in biomass comprehensive utilization, hazardous waste disposal, and new energy generation, with capacity concentrated in the anhui region. The biomass power generation industry experienced rapid growth during the 13th Five-Year Plan, but after 2020, the reduction in state subsidies led to a decline in profit expectations. Additionally, the hazardous waste sector faced pressure on capacity clearing and pricing, prompting the company to actively reduce expected returns from poorly performing construction projects. As a result, the decline in construction income led to profit losses, and in 2023, the impairment from hazardous waste projects impacted profits. However, following recent years of model transformation, as of 2023, the company's biomass utilization sector operating income proportion has increased to 84%, a rise of 50 percentage points over the past five years, while hazardous waste disposal has risen to 96%, an increase of 42 percentage points over the past five years, indicating that the transformation has yielded results.

The profitability pressure from hazardous waste remains, but the company is actively expanding revenue channels such as biomass power generation and collaborative heating and steam supply from hazardous waste.

The hazardous waste industry has a fragmented supply side and is continuously clearing, with an improvement in waste generation in the first half of 2024. However, the bank believes that price recovery will take time. Given the current weakening profit expectations from core business activities, the company is actively expanding revenue channels, including collaborative heating and steam supply and models like "zero-carbon parks + virtual power plants." The amount of steam supplied from biomass utilization achieved a CAGR of 21% from 2020 to 2023, while the steam supply amount from hazardous waste disposal increased by 82 times year-on-year in 2023, with three zero-carbon park projects initiated in the first half of 2024.

The free cash flow is about to be turned around, expected to return to the usual dividend level.

By reducing the yield expectations of poorer ongoing projects and cutting capital expenditure, the company's free cash flow in 2023 rebounded to -1.5 billion Hong Kong dollars. As of the first half of 2024, the company only has 1 biomass utilization project and 3 hazardous waste disposal projects under construction, and has received biomass power generation subsidies of 1.53 billion yuan in the first half, better than the same period last year, therefore, the free cash flow in the first half of 2024 turned positive to 0.67 billion Hong Kong dollars. The bank believes that as capital expenditure decreases and electricity price subsidies gradually return to normal, the company's free cash flow will gradually become abundant, returning to the usual dividend level.

The biggest difference between this bank and the market? This bank is more optimistic about the company's ability to enhance project profitability through diversified revenue channels, but the profitability level of solid hazardous waste disposal remains to be observed.

Potential catalysts: Renewable energy subsidy issuance; financial efforts to relieve local government debt, restoring eco-friendly concept valuations.

Risk

Subsidy recovery for renewable energy is below expectations, new energy electricity price subsidies are decreasing, hazardous waste impairment exceeds expectations, and insufficient cost control for agricultural and forestry biomass fuels.