Grandblue Environment (SH:600323) GF SECURITIES·2024-08-06 13:01Investment Rating - The report maintains a "Buy" rating for the company with a target price of 29.10 CNY per share [3]. Core Insights - The privatization plan for Yuefeng is expected to significantly increase capacity and cash flow, potentially doubling them. The acquisition price is approximately 40.2 billion CNY, with additional bank loans of up to 61 billion CNY, totaling around 111 billion HKD for 92.77% of Yuefeng's shares. Post-transaction, the company is projected to hold 52% of Yuefeng, leading to an estimated profit increase of 310 million CNY, representing a 22% elasticity based on the 2023 net profit [1][11]. - The company has a history of steady growth, with past acquisitions leading to a market cap exceeding 18 billion CNY. From 2015 to 2021, the company maintained a growth rate of around 30%, aligning with a PE ratio of 20x to 25x. Recent performance has stabilized, with improved cash flow and new growth expectations from the acquisition [1]. - The integration of solid waste assets is becoming increasingly valuable, with the company and Yuefeng being key players in Guangdong's solid waste sector. Their overlapping project areas allow for operational synergies, enhancing their competitive edge and potential for dividend increases [1]. - Profit forecasts for the company from 2024 to 2026 are projected at 1.685 billion CNY, 1.720 billion CNY, and 1.825 billion CNY, respectively, with corresponding PE ratios of 10.15, 9.95, and 9.38 [2]. Summary by Sections Section 1: Privatization of Yuefeng - The company announced a privatization plan for Yuefeng, with a total transaction value of approximately 110.9 to 111.0 billion HKD. The plan involves acquiring 92.8% of Yuefeng's shares, with the company expected to hold 52% post-transaction [11][12]. Section 2: Yuefeng's Financial Stability - Yuefeng has a total operational capacity of 43,700 tons per day, with half located in Guangdong. The company reported a net profit of 900 million CNY in 2023, with a significant portion of its revenue coming from waste-to-energy projects [17][20]. Section 3: Capacity and Profitability Projections - The company anticipates a near doubling of capacity and cash flow post-acquisition, with a projected stable profit of 1.8 billion CNY by 2026 if the privatization is successful. The current market PE for the solid waste industry averages 13x, indicating a potential upside of 39% to 62% for the company's market valuation [1][2]. Section 4: Financial Forecasts - Revenue forecasts for the company are set at 12.875 billion CNY for 2022, with a slight decline to 12.541 billion CNY in 2023, followed by a recovery to 13.153 billion CNY in 2024. The expected growth rates for the following years are 4.9%, 3.4%, and 4.1% [2].