The performance of the main industry of environmental protection is outstanding, and the proportion of main net profit that shareholders should account for continues to rise; the H1 gross profit margin has declined due to intensified competition in the hazardous waste solid waste market and rising material costs, but it is still at a high level; market expansion continues smoothly, and new projects have been intensively signed to consolidate the leading position of coordinated disposal, and are arranging non-cement kiln collaborative disposal areas such as fly ash washing and sludge disposal to enhance one-stop service capacity. Appropriately downgrade the 2021-2023 net profit forecast to 83.01-93.48 billion yuan, maintaining the "buy" rating, with a target price of HK $42.30.

The performance of H1 was slightly lower than expected. The company's 2021H1 realized operating income of 3.879 billion yuan, an increase of 37.72% over the same period last year; the net profit returned to the parent was 3.477 billion yuan, an increase of 0.24% over the same period last year, of which the net profit of the main business attributable to shareholders was 733 million yuan, an increase of 31.38% over the same period last year; the first-half results were converted into EPS1.93 yuan. The performance was slightly lower than expected, mainly due to increased competition in the hazardous waste and solid waste market and higher upstream material costs.

Solid waste disposal + waste incineration two-wheel drive, the operating efficiency of revenue structure is continuously optimized. The company's 2021H1 solid waste and domestic waste reception volume is outstanding, receiving a total of 322600 tons of hazardous waste, 621700 tons of general solid waste and 2.3208 million tons of domestic waste, driving the company's revenue from hazardous waste and solid waste disposal to increase by 86.93% compared with the same period last year, and garbage disposal revenue by 26.59% compared with the same period last year. Affected by the intensification of market competition, the average price of hazardous waste and solid waste disposal decreased during the reporting period, and the gross profit margin of the hazardous waste and solid waste disposal plate decreased by 4.53 pcts to 61.99%. The gross profit margin of waste disposal business declined slightly, mainly due to the increase in the cost of material procurement during the construction period, some projects are still in the trial production and operation period, and there is still room for technical transformation and optimization. From the perspective of revenue structure, the proportion of revenue from waste disposal construction has declined, and the quality of the company's revenue has continued to improve. 2021H1 waste incineration tons of online electricity increased by 22 degrees to 357kWh, operational efficiency continued to improve. During the period, the cost remained relatively stable, in which the rate of sales / management expenses increased by 0.41 to 0.38 pct compared with the same period last year. In terms of debt level, as of H1, the asset-liability ratio was 30.42%, an increase of 4.01 pcts over the same period last year, due to the increase in investment in projects under construction and the corresponding increase in bank loans. Operating cash flow continued to improve, an increase of 537 million yuan over the same period last year.

The project has been expanded smoothly and steadily, and the advantage of collaborative disposal of cement kiln has been continuously consolidated. The company adheres to the two-wheel drive strategy of "solid waste disposal + grate waste power generation". 2021H1 has added 11 new hazardous waste solid waste disposal projects with a capacity of 12.2 million tons / year, and 6 new waste disposal projects with a capacity of 1.22 million tons / year (2900 tons / day). Promote the production capacity of hand-held hazardous waste solid waste disposal to 9.67 million tons / year, and domestic waste treatment capacity to 37900 tons / day. The company actively promotes the expansion of cement kiln collaborative disposal project, and 2021H1 adds 400,000 tons of cement kiln collaborative disposal capacity per year, continuously consolidating its leading position in the field of cement kiln collaborative disposal. During the reporting period, the company added 820,000 tons of non-kiln disposal capacity per year, promoting the development of the industrial chain of solid waste, fly ash washing, sludge and contaminated soil disposal. In other business sectors, the company will strengthen the technical transformation of new building materials and equipment, continue to expand port logistics business new customers and promote intelligent upgrading.

Risk factors: the project is not advancing as expected; the government's ability to pay is declining; market competition is fierce; cement prices fluctuate sharply.

Investment suggestion: the company's main environmental protection business maintained rapid growth in the first half of the year, but due to intensified competition and rising material procurement costs, we adjusted our cost assumptions and appropriately adjusted our net profit forecast for 2021 / 2023 to 83.01 / 103.48 million (originally 860 / 996 / 11.49 billion). The company's current share price corresponds to PE in 2021 / 2023, which is twice that of 6-5-5. With reference to the valuation of the same industry, the company's environmental protection main industry is given a target of PE15 times in 2021, and the equity holding of Anhui Conch Cement refers to the market.