Enric’s earnings slipped 2% YoY to about RMB1.1bn in 2024, in line with our forecast. Strong performance of the clean energy segment was offset by the earnings decline at the other two segments. We expect the company to post 15% YoY growth in 2025 as the strong performance of clean energy segment should continue whereas the other two segments should no longer drag its overall earnings. Moreover, its JVs with steel mills should see higher contributions. We trim our 2025-26 earnings forecasts by 2%. We reiterate our BUY call with target price lowered to HK$9.03.
Key Factors for Rating
The clean energy segment posted 15% YoY revenue growth and 71% YoY operating profit growth in 2024. However, this was offset by the 50% YoY decline in operating profit of the chemical & environmental segment and 21% YoY decline in the liquid food segment. The former was hit by decline in turnover (down 29% YoY) and gross margin (down 4.6ppt) whereas as the latter was hit by 36% YoY surge in SG&A expenses upon suspension of some projects.
The value of new orders grew 3% YoY to RMB27.5bn in 2024, another record high. The strong growth at clean energy segment (up 17% YoY), specially the offshore products, was offset by the declines at the other two segments. Its order backlog increased 24% YoY to RMB28.3n by end-2024. The clean energy segment was again the key growth driver with offshore products being the distinct outperformer on strong demand for LNG bunkering / fueled vessels upon green transition of marine fuel.
Looking ahead, we expect its earnings to grow 15% YoY in 2025. Clean energy segment is still the key growth driver as the company gradually delivers product orders by clients. It will also see the full-year contribution from its JV with Angang to convert coke oven gas into hydrogen and LNG. A similar JV with Linggang and the JV of producing green methanol should start production this year. The chemical & environmental segment should recover slightly whereas we expect flat revenue for the liquid food segment.
Key Risks for Rating
The revenue and profit chemical and environmental segment keep falling.
The lack of new orders for liquid food segment.
Valuation
We lower our target price from HK$9.10 to HK$9.03 to reflect the small cuts in our earnings forecasts. We change our target valuation from 0.7x 2024-26E PEG to 0.9x 2025-27E as expected growth in the coming three years look more reasonable. Our target price is equal to 12.5x 2025E core earnings.
Successful JV with Steel Mill will Spearhead more Similar JVs
Enric’s 50-50 JV with Angang to convert coke oven gas into LNG and hydrogen started operations in late September 2024. During the operations of roughly three months, the JV sold 50k tonnes of LNG and 1.9m m3 of hydrogen. It generated revenue RMB220m and net profit of RMB26m.
In 2025, the JV with Angang Steel will show full-year contribution. Its JV with Linggang Steel will start operations in mid-2025 and another JV with Shuigang will start in 2026. This type of cooperation with steel mills to convert emission into energy looks successful and the company would like to invest in more similar JVs in future and hopefully can finalise two more similar JVs in 2025.