EDITOR

Editor's Note

China Re Resources and Environment Co., Ltd. (hereinafter referred to as "China Re Resources and Environment") released its latest annual report, and two sets of data, one cold and one hot, attracted widespread attention: net profit plummeted by 66.05%, while operating cash flow soared nearly five times. The sharp contrast between the decline in profits and the surge in cash reveals a profound change in the company's operating logic. Is this a temporary dilemma or a strategic turnaround in the making? Policy changes, industry reshuffles and company response paths.

2024 is a year of "pressure and change" for China Re Resources and Environment Co., Ltd. (hereinafter referred to as "China Re Resources and Environment" ) . According to the annual report data, the company's net profit attributable to shareholders plummeted by 66.05% year-on-year to only 22.47 million yuan, but the net operating cash flow soared to 349 million yuan during the same period, a year-on-year increase of 448.80%. This strong divergence between performance and cash flow is quite rare in the A-share market.

— 1 —

Net profit was halved by 66%. Why did the performance suddenly drop?

According to the annual report, the company achieved operating income of 4.024 billion yuan in 2024, a year-on-year increase of 8.75%. However, the net profit attributable to shareholders of the listed company dropped sharply to 22.47 million yuan, a year-on-year decline of 66.05%; the non-net profit plummeted by 80.21% year-on-year to only 11.16 million yuan.

The main reason for this phenomenon is the major adjustment of the national waste power treatment subsidy policy . From January 1, 2024, the original treatment fund subsidy mechanism will be discontinued, and replaced by a new special fund "reward instead of subsidy" mechanism. The collection period is lengthened and the standards are inconsistent, resulting in a significant reduction in the subsidy income that can be confirmed on the company's books. The annual report shows that the company's calculated special funds for waste power treatment have decreased by about 108 million yuan compared with last year. This directly hit the profit performance and also put forward higher requirements for the company's cash flow management capabilities.

— 2 —

Cash flow surged by 448.80%, and capital allocation became more flexible

Despite the severe decline in net profit, China Reinsurance's cash flow performance is remarkable. In 2024, the company's net cash flow from operating activities was 349 million yuan, a year-on-year increase of 448.80%. It mainly comes from two aspects:

1. Cash received from sales of goods increased significantly : on the one hand, the volume of scrap electrical equipment dismantled increased by 19.6% year-on-year to 25.9 million units (sets), a record high; on the other hand, the downstream end-customer structure was optimized and the ability to collect payments was enhanced.
2. Sales model optimization : The company promotes long-term sales and direct supply to terminals, providing a stable and flexible delivery path outside the bidding platform.

3. In addition, the company completed a private placement and raised 882 million yuan, providing sufficient financial support for subsequent production expansion, technological transformation, mergers and acquisitions, etc.

— 3 —

Significant changes in cost structure: sales down, management up, R&D up

Annual report data showed that sales expenses dropped significantly by 59.34% to 17.2 million yuan, reflecting the company's achievements in market channel expansion and cost control.

In contrast, management expenses rose to 149 million yuan, a year-on-year increase of 15.76%, mainly due to the increase in labor costs. The most noteworthy is that R&D expenses reached 20.12 million yuan, a year-on-year increase of 346.61%, indicating that the company is actively promoting the upgrading of core disassembly technology and carbon footprint research certification.

The company promoted equipment upgrades at six dismantling plants and completed qualification structure adjustments at five plants during the year. Its annual qualification for waste electricity processing also increased from 31.88 million units (sets) to 35.78 million units (sets), laying the foundation for future business expansion.

— 4 —

Policy-driven industry reshuffle, companies rise to the challenge

"Policy" is the biggest "variable" that China Reinsurance will face in 2024. With the withdrawal of the policy on the waste electrical and electronic products treatment fund, the industry has officially entered the era of "special funds + awards instead of subsidies".

Of the 7.5 billion yuan of special funds set up by the central government, the company's 11 dismantling plants received a total of 1.685 billion yuan, accounting for 22.47% of the national total. Its position in the industry cannot be underestimated.

At the same time, the application standards have been raised: starting from 2025, enterprises in western China will need to process more than 600,000 units of waste electricity per year, while those in eastern and central China will be required to process 800,000 units. In the future, small workshop-style processing enterprises will be eliminated, and leading enterprises such as China Recycling and Environmental Protection will have scale and compliance advantages and are expected to further expand their market share.

— 5 —

Risks and challenges coexist: policy adjustments and cost control remain the focus

Although the policy tilt is favorable to leading enterprises, the uncertainty brought by the new subsidy mechanism is still a major challenge. For example, the refund period, amount and controllability of "reward instead of subsidy" are different from the old mechanism. In addition, the dismantling business itself is highly dependent on cash flow. Once the subsidy is delayed, the company's capital turnover will be under pressure. At the same time, price fluctuations on the recycling end and high raw material costs have also exacerbated the instability of profitability.

In the future, if the company can better cope with these uncertainties by strengthening direct supply to end customers, promoting deep processing (such as aluminum and copper recycling), and developing new environmental protection businesses such as "soil remediation".

— 6 —

Concerns and hopes coexist, 2025 is a critical turning point

China Reinsurance and Environmental Protection suffered a sharp drop in net profit in 2024, but it demonstrated strong cash allocation and network construction capabilities. Although the policy transition has brought pain, it has also brought historic opportunities for leading companies to integrate the industry. Before the subsidy mechanism is stabilized, the company needs to improve its own "hematopoietic" ability and consolidate its foundation by reducing costs and increasing efficiency, expanding downstream, and strengthening research and development.

2025 may be a key turning point that will determine the landscape of the resource recycling industry in the next five years.

(Source: China Re Resources and Environment Co., Ltd. 2024 Annual Report )