1H22 results largely in line with our expectations

Infore Environment Technology announced its 1H22 results: Revenue rose 4.1% YoY or fell 11.0% HoH to Rmb5.67bn, and attributable net profit dropped 12.6% YoY or 9.1% QoQ to Rmb325mn (Rmb0.1/sh). 2Q22 revenue rose 5.0% YoY to Rmb2.85bn, and attributable net profit fell 16.0% YoY to Rmb184mn. The results were largely in line with our expectations.

Trends to watch

Focusing on the intelligent sanitation business; sanitation services grew rapidly. After the disposal of its magnet wire business in 2021, the firm continued to focus on intelligent sanitation. In 1H22, revenue from sanitation equipment rose 2% YoY to Rmb2.83bn, accounting for 49.9% of total revenue, largely remaining stable. Sanitation service generated Rmb1.9bn revenue, increasing 40.6% YoY mainly due to new projects. Other businesses booked Rmb940mn revenue, and their contribution to the total revenue further declined to 16.58% from 24.3% in the same period last year. The firm’s self-developed full-value-chain smart sanitation cloud platform using big data has provided intelligent services to clients, selling over 70,000 units nationwide.

GM is recovering; the firm’s leadership in sanitation equipment remains solid. In 1H22, the firm’s gross margin (GM) rose 0.3ppt YoY to 23.5%. Specifically, the GM of smart equipment and other businesses grew 1.03ppt and 2.11ppt to 25.88% and 26.56%, while that of smart services fell 0.30ppt to 18.32%. In 1H22, total sales volume of sanitation equipment reached 7,080 units, ranking first for the 21st consecutive year. Sales of new energy products continued to climb, reporting 599 units in 1H22 (up 184% YoY) to give the firm the largest market share of 29.7%.

Amble sanitation service orders on hand; ramp-up of new energy products boosts revenue. In 1H22, the firm secured 45 new sanitation service projects, with Rmb5.6bn new orders and Rmb100mn annualized value of new orders, ranking first in the market. As of 1H22, the firm was running 211 sanitation service projects, with an annualized order value of Rmb4.87bn. Rmb41.73bn orders were waiting to be executed, demonstrating the firm’s ability to sustain operations, in our views. Furthermore, the company's new energy products cover over 40 categories, including sweeping, cleaning, waste collection and transfer, and municipal cleaning. Given the firm’s steady progress towards China’s peak carbon and carbon neutrality goals, we expect its new energy sanitation equipment sales to grow, driving earnings growth.

Financials and valuation

We maintain our 2022 and 2023 earnings forecasts. The stock is trading at 18.9x 2022e and 17.3x 2023e P/E. We maintain OUTPERFORM and a TP of Rmb5.50 (21.6x 2022e and 19.8x 2023e P/E), offering 14.1% upside.

Risks

Disappointing orders growth; intensifying market competition; macroeconomic fluctuations.