The performance of 1H21 increased but the gross profit margin of each business declined, maintaining the "overweight" rating company 1H21 to achieve a revenue / return net profit of 1.917 billion yuan, an increase of 19.7% and 6.3% compared with the same period last year; corresponding to 2Q21 revenue / return net profit of 1.61 billion yuan, + 21.4% and 5.0% compared with the same period last year. The growth of 1H21 performance is mainly due to the increase in the scale of the company's three main businesses, of which the revenue from water operation services increased by 23.9% compared with the same period last year.

However, the cost of each 1H21 business has risen faster than revenue growth, resulting in a year-on-year decline in gross profit margin. We continue to be optimistic about the synergy between the company and the China Energy Saving Group (unlisted), maintain the 21-23 EPS forecast of 0.57max 0.70max 0.81 yuan, refer to the comparable company's Wind consensus forecast of 2021 PE average 15x, out of concern about the company's annual gross profit margin level, give the company a 21-year 14x target PE, corresponding to the target price of 8.04yuan (previous target price: 8.55yuan), and maintain the "overweight" rating.

The growth of the business scale of 1H21 promoted the increase in revenue, but the gross profit margin decreased year-on-year. According to 3.4pct business types, 1H21's water operation services / environmental engineering construction services / environmental protection equipment sales and service revenue increased by 23.9% year-on-year, respectively, from 15.6% to 10.0%, and the company's 1H21 operating revenue increased by 19.7% to 1.92 billion yuan compared with the same period last year. However, due to the higher cost of the three main businesses 1H21 than the increase in revenue, the company's water operation services / environmental engineering construction services / environmental protection equipment sales and service 1H21 gross profit margin decreased by 2.7/5.8/1.2pct to 40.2% 12.3% and 31.7% respectively compared with the same period last year. At the same time, due to the increase in labor costs in the current period, the company's 1H21 management expenses increased by 34.0% year-on-year. However, the year-on-year improvement in sales rebate in the current period led to a 3.5% year-on-year increase in the company's net cash flow from 1H21 operations.

The total amount of new orders for 1H21 operations and projects has increased slightly. It is expected that the total amount of new orders for operations / engineering with 1H21, a synergy company of the group, will be RMB 01.14 billion, which is-69.7% and 27.8% compared with the same period last year, but the scale of new orders for operations will be much smaller than that for engineering. Overall, the total new orders for the two types of 1H21 businesses of the company are 1.21 billion yuan, slightly higher than 1.13 billion yuan for 1H20. Among the controlling shareholders of the company, Energy Saving Group is the only central enterprise in China that focuses on energy conservation and environmental protection. Energy-saving Guozhen is expected to give full play to the resource advantages and financing channel advantages of the controlling shareholders in the future, combined with the original operating efficiency of the company. the synergy effect is expected.

The company's 1H21 performance is generally good, maintaining the "overweight" rating company 1H21 operating income / homing net profit to achieve year-on-year growth. We maintain the 21-23 homing net profit forecast of 490 million yuan, corresponding to an EPS of 0.57, 0.70 and 0.81 yuan, with reference to the comparable company's 21-year Wind consensus forecast PE average 15x, out of concern about the company's annual gross profit margin. Give the company a 21-year 14x target PE, corresponding to the target price of 8.04yuan (previous value: 8.55yuan), and maintain the "overweight" rating.

Risk hint: the progress of the project is not as expected, the labor cost is higher than expected, and the gross profit margin is lower than expected.