Event: Zhongchuang Environmental Protection released 2021 semi-annual report: in the first half of 2021, the company achieved operating income of 548 million yuan, down 21.87% from the same period last year; the net profit returned to its mother was-18.7512 million yuan, down 568.46% from the same period last year; the company realized EPS of-0.0489 yuan in the first half of 2021, down-565.71% from the same period last year.

Excluding the trade business, the revenue of the existing business segment is growing rapidly. The company's operating income decreased in the first half of 2021 compared with the same period last year, mainly because the company spun off its trading business at the end of the third quarter of 2020. in the same period last year, the company still had trade business income of 444 million yuan. Excluding trade business income, operating income increased by 112.85% in the first half of 2021 compared with the same period last year. Of this total, the business income of non-ferrous materials reached 381 million yuan, a substantial increase of 318.20% over the same period last year, and the revenue of filter materials increased by 10.21% over the same period last year, achieving steady growth.

The rise in the price of raw materials is the main reason for the decline in the company's profits. The company's net profit fell sharply in the first half of 2021 compared with the same period last year, mainly due to a sharp increase in the price of raw materials for the company's filter media products, of which the price of PPS materials increased by nearly 56% over the end of last year, and the price of PTFE materials increased by nearly 17% over the end of last year. In terms of the flue gas treatment project, the performance fell short of expectations due to the continuous rise in steel prices in the first half of 2021 and the unrecognized revenue in the first half of the project.

The core business of non-ferrous materials continues to expand. In the first half of 2021, the company's non-ferrous materials accounted for 69.52% of the company's revenue, making it the largest revenue segment of the company. In March, the company focused on precious metals (platinum, palladium, rhodium, gold, silver) through the acquisition of Jiangxi Neihua Environmental Protection Technology Co., Ltd., and further distributed the non-ferrous metals industry. The energy consumption of recycled metals is much lower than that of primary smelting. Vigorously developing recycled metal materials can promote the recycling of resources and achieve win-win economic, social and environmental benefits, which is in line with the concept of green development and circular economy. In line with the direction advocated by national key development.

The "endogenesis and extension" development strategy ensures the steady growth of the company in the future. In accordance with the business development plan, adhering to the "endogenous extension" development strategy, and supported by the independent intellectual property rights of the Technology Research Institute, the company has formed three major business sectors: non-ferrous metal materials, filter materials and environmental treatment (flue gas treatment engineering, hazardous waste disposal, urban and rural sanitation integration, sewage treatment). At the same time, through standardizing the company's internal governance and improving the internal control system, to ensure the realization of the overall goal of the company.

Investment suggestion: under the background of "carbon neutralization and carbon peak", the company focuses on the utilization of hazardous wastes and takes non-ferrous metals as the focus of future development planning, which can not only achieve the reduction and harmlessness of hazardous wastes, but also fully tap the resources in hazardous wastes and produce recycled non-ferrous metals. The company's hazardous waste capacity will be released one after another in the next two years. Coupled with the layout in the field of environmental and sanitation integration, it is estimated that the net profit of the company 2021, 2022, which belongs to the shareholders of the listed company in 2023, will be 0.93 PE, respectively, an increase of 344.07%, 95.23%, 32.34%, and 0.24, 0.47, 0.62 yuan per share, respectively, and the corresponding PE will be 27.61x/14.14x/10.69x. For the first time, coverage gives cautious recommended ratings.

Risk hint: the risk that the speed of the project is not as fast as expected; the risk of change in hazardous waste disposal policy; the risk of intensified competition in the industry.