Dongjiang Environmental Protection (00895 HK)'s revenue for the first quarter of 2022 increased 28.2% year-on-year to 964 million yuan (RMB, same below). Shareholders' net profit fell 83.6% year over year to 5 million yuan. The performance was worse than expected. The company's overall gross margin fell 6.9 percentage points year over year to 20.7%. The sales expenses ratio fell 1.0 percentage points to 2.4% year on year, the administrative expenses rate fell 2.2 percentage points year on year to 9.7%, the R&D expenses rate increased 0.1 percentage points year on year to 4.3%, and the financial expenses ratio increased 0.7 percentage points year on year to 5.6%.

From 2021 to 2024, we expect total revenue to increase at a compound annual growth rate of 6.7%, with industrial resource utilization revenue and industrial waste treatment and disposal revenue increasing at 2.3% and 9.5% respectively. Additionally, we expect overall gross margin to increase from 24.5% in 2022 to 25.7% in 2023 and 27.9% in 2024.

Our earnings per share forecast for 2022 to 2024 are RMB 0.114, RMB 0.198, and RMB 0.282, respectively. Industrial waste disposal prices will remain under pressure in 2022, and the company's 2022 performance is unlikely to improve.

Lower the target price to HK$3.10, which is equivalent to 22.6/ 13.0/ 9.1 times the anticipated price-earnings ratio for 2022/2023/2024.

Maintain “collection” ratings.