2024-04-26-港交所-康达环保_2023年度报告_234页_5mb

2023 Annual Report Summary of Kangda International Environmental Company Limited

Core Content Overview

This annual report provides a comprehensive overview of the financial performance, business operations, corporate governance, and strategic direction of Kangda International Environmental Company Limited (the "Group") for the year ended 31 December 2023. It highlights the Group's focus on urban water treatment, its response to economic and industry challenges, and its strategic initiatives to enhance profitability and long-term value creation.

Main Points and Key Information

Company Information

• Registered Office: Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.
• Headquarters in China: No. 72 Avenue of Stars, High-Tech Park, North New Zone, Chongqing, PRC.
• Principal Place of Business in Hong Kong: Suite 6409, 64/F, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong.
• Stock Code: 6136.
• Company Website: http://www.kangdaep.com.
• Authorized Representatives: Mr. Zhao Juanxian (alias Zhao Junxian) and Mr. Li Zhong.
• Company Secretary: Mr. Wong Wan Sing.
• Independent Auditors: Ernst & Young.
• Legal Adviser (Hong Kong Law): Norton Rose Fulbright Hong Kong.
• Major Banks: Industrial and Commercial Bank of China, Chongqing Rural Commercial Bank, Bank of China, Shanghai Pudong Development Bank.

Chairman's Statement

Results Review

• Construction Services Revenue: Decreased by RMB719.5 million (approximately 81%) to RMB173.6 million, contributing less than 8% of total revenue.
• Total Revenue: Decreased by 23.5% year-on-year to RMB2,216.4 million.
• Water Treatment Operations:
  • Actual wastewater treatment volume reached 1,265.7 million tonnes, an increase of 3.2% compared to the previous year.
  • Utilization rate of treatment plants and reclaimed water plants increased from 82% to 85%.
• Operation Revenue: Increased by approximately 2% year-on-year to RMB1,265.3 million, reaching a record high.
• Gross Profit Margin: Improved to 48.5%, up 4.7 percentage points from 43.8% in the previous year.
• Gross Profit and Profit Attributable to Owners: Decreased by 15.2% and 47.1% respectively to RMB1,076.0 million and RMB124.8 million.
• Operating Cash Flow: Achieved RMB292.9 million, maintaining a positive flow for five consecutive years since 2019.
• Capital Expenditure: Decreased by approximately 75% to RMB127.1 million.
• Gearing Ratio: 69.6% (vs. 69.7% in 2022).
• Current Ratio: 1.15 (vs. 1.11 in 2022).
• Average Borrowing Interest Rate: 5.95%, down 0.01 percentage points from last year.
• Finance Costs: RMB578.7 million, up 2.2% year-on-year.
• Long-term Borrowings: 64.7% of total borrowings (vs. 69.8% in 2022).

Development Strategy and Future Outlook

• The Group will continue to focus on urban water treatment, aiming to enhance profitability and competitiveness.
• Expand the wastewater treatment capacity and treatment standards.
• Accelerate the adjustment of wastewater treatment tariffs in a reasonable manner.
• Deepen energy-saving and consumption-reducing measures.
• Explore wastewater resource utilization and reclaimed water businesses.
• Invest in high-quality, value-adding upstream and downstream businesses of the water industry.
• Strictly and scientifically control capital expenditures to reduce the gearing ratio and interest expenses.

Management Discussion and Analysis

Business Review

• Urban Water Treatment:
  • The Group had 103 service concession arrangement projects in operation, with an operational treatment capacity of over 4 million tonnes per day.
  • Includes 106 wastewater treatment plants, 1 water distribution plant, 3 sludge treatment plants, and 2 reclaimed water treatment plants.
  • Annualized utilization rate for wastewater and reclaimed water treatment plants was approximately 85% (vs. 82% in 2022).
  • Actual average water treatment tariff was RMB1.59 per tonne (vs. RMB1.56 in 2022).
  • Actual total processing volume reached 1,265.7 million tonnes, a minor increase of 3.2% compared to the previous year.
• Water Environment Comprehensive Remediation:
  • The Group had 5 projects under construction, mainly located in Jiangxi province.
  • Total revenue for these projects was RMB43.4 million, down 62% from RMB114.4 million in 2022.
• Rural Water Improvement:
  • The Group had 2 projects in Guangdong province.
  • Total revenue was RMB49.9 million, down 16% from RMB59.1 million in 2022.

Construction Services

• The Group recognized revenue from 28 projects, including 24 wastewater treatment plants, 1 water distribution plant, 1 reclaimed water treatment plant, and 2 sludge treatment plants.
• Total construction revenue for the year was RMB121.0 million, a decrease of approximately 84% from RMB753.0 million in 2022.
• The decrease was due to fewer projects during the main construction period, completion of EPC projects, and commencement of operation of PPP projects.

Financial Analysis

Revenue

• Total revenue: RMB2,216.4 million, down 23.5% from RMB2,896.6 million in 2022.
• Decrease in construction revenue: RMB719.6 million.
• Increase in operation revenue: RMB28.5 million.
• Increase in financial income from service concession arrangements: RMB10.9 million.

Cost of Sales

• Total cost of sales: RMB1,140.4 million, down 30% from RMB1,627.9 million in 2022.
• Construction cost decreased by RMB551.5 million.
• Operation cost increased by RMB64.0 million due to more upgrade projects and rising costs of wastewater treatment chemicals.

Gross Profit Margin

• Gross profit margin: 48.5%, up 4.7 percentage points from 43.8% in 2022.
• The increase was primarily due to the decline in the proportion of construction revenue.

Other Income and Gains

• Other income and gains: RMB59.8 million, up 11% from RMB53.9 million in 2022.
• Includes government grants (RMB20.2 million), environmental protection grants, bank interest income, loan interest income, and dividend income.

Administrative Expenses

• Increased by approximately 3% to RMB283.1 million.
• Mainly due to higher professional fees.

Other Expenses

• Decreased by approximately 59% to RMB43.4 million.
• Reductions in foreign exchange losses, non-operating expenses, and impairment losses, partially offset by losses on disposal of an associate.

Key Policies and Trends

• The Chinese government introduced several policy documents in 2023, including the "Implementation Plan on Promoting the Construction and Management of Domestic Wastewater and Waste Treatment Facilities in Established Towns", the "Outline of the National Water Network Construction Plan", and the "Action for Upgrading the Standard of Environmental Infrastructure Construction (2023-2025)".
• These policies aim to improve the business environment, reduce transaction costs, and promote fair access to the industry.
• The Group believes these policies will support a healthier development of the wastewater treatment industry and create greater value for shareholders.

Strategic Adjustments

• Disposal of Non-controlling Interest: In December 2023, the Group sold 31% of its non-controlling interest in Zhongyuan Water Group Co., Ltd., after obtaining independent shareholder approval.
• Optimization of Financial Structure: The Group increased the proportion of long-term liabilities, optimized its loan portfolio, and controlled financing costs.
• Liquidity Management: Increased cash holdings and maintained a positive operating cash flow for five consecutive years.

Conclusion

The Group's 2023 performance reflects a strategic shift towards core water treatment operations, with a focus on enhancing operational efficiency and financial stability. Despite challenges from economic recovery and rising costs, the Group successfully maintained positive cash flow, optimized its capital structure, and aligned with national policies to support long-term growth and value creation.