Datang Environment (1272.HK) Q1 2024 Earnings Report

Datang Environment’s Q1 2024 results show a modest year-over-year improvement in net income alongside a material decline in revenue and a heavier cash-burn profile. Revenue declined by 5.72% YoY to 1.1787 billion CNY, while gross profit rose modestly by 3.68% to 270.8 million CNY, yielding a gross margin of 22.97%. Operating income contracted on a YoY basis by 15.08% but surged 64.68% QoQ, delivering an operating margin of 13.65%. Net income grew 6.87% YoY to 132.8 million CNY, with diluted earnings per share (EPS) of 0.04 CNY. Despite earnings momentum, the company continued to burn cash in the quarter, with negative operating cash flow (-63.5 million CNY) and negative free cash flow (-130.7 million CNY), driven by working capital dynamics and financing outflows. Management commentary is not included in the provided transcript, limiting direct quote-based insights. Liquidity remains challenged by elevated receivables, high short-term and long-term debt, and a cash/debt mix that yielded a negative free cash flow profile. Given the absence of explicit forward guidance, the analysis emphasizes the need to monitor backlog conversion, receivables discipline, and deleveraging progress. The stock’s valuation remains inexpensive (P/E ~4.0x, P/B ~0.28x), though this is offset by negative free cash flow and elevated leverage.

Key takeaway for investors: while Datang Environment exhibits stable margins and a positive net income trajectory in Q1, the persistently negative free cash flow and sizable debt burden underscore a cautious stance until there is visible improvement in working capital efficiency, cash generation, and a clearer visibility on project backlogs and price/margin recovery.