Introduction to this report:

2022Q3 achieved net profit of 345 million yuan after deducting non-attributable profit, an increase of 33% over the previous year. Production capacity in the water and resource sector has been gradually released, and the flue gas treatment business is developing steadily, driving the company's performance growth, and waiting for the expansion of the thermal power flue gas treatment business.

Key points of investment:

Maintain an “increase in holdings” rating. We maintain forecasting that the company's net profit for 2022-2024 is 7.2, 9.1 and 1.13 billion yuan respectively, and the corresponding EPS is 0.50, 0.64, and 0.79 yuan. The company's leading position in the flue gas treatment industry is stable, and at the same time it has successfully transformed into a comprehensive environmental service provider. While the water+energy-saving+resource business is steadily expanding, the acceleration of thermal power investment may bring performance flexibility exceeding expectations to the company's thermal power and smoke treatment business, maintaining the target price of 8.32 yuan, maintaining the “increase in holdings” rating.

The operation is steady, and the performance is in line with expectations. 1) 2022Q3 achieved revenue of 5.471 billion yuan, an increase of 47% over the previous year; attributable net profit of 369 million yuan, an increase of 6% over the previous year; after deducting unattributed net profit of 345 million yuan, an increase of 33% over the previous year. 2) The 2022Q3 company achieved revenue of 1,671 million yuan in a single quarter, an increase of 0.2% over the previous year; net profit after deducting unattributed net profit was 105 million yuan, an increase of 11% over the previous year. 3) Production capacity in the water and resource development sector was gradually released, and the flue gas treatment business developed steadily, driving the company's performance growth.

Profit margins declined year over year. 2022Q3's consolidated gross margin fell 3.97pct to 19.78% year on year; net profit margin fell 2.08pct to 7.90% year on year. The sales expense ratio fell 0.30 pct to 0.89% year on year; the financial expense ratio fell 0.46 pct to 5.34% year on year; the management expense ratio increased 0.70 pct to 7.18% year on year; and the R&D expense ratio remained stable at 1.03%.

Wait for the thermal power flue gas treatment business to expand. We repeat that with the acceleration of investment in thermal power, the company's core flue gas business is expected to be launched again. 1) The pressure to guarantee and supply electricity across the country is still strong, and it is imperative to speed up the increase in the installed scale of supporting power supplies for coal power. Recently, approval of thermal power projects has accelerated markedly. 2) Clean Environment is a leading company with a market share of over 20% in the field of thermal power flue gas treatment. It is expected to fully benefit from the acceleration of thermal power investment, and the company's thermal power flue gas treatment engineering business is expected to resume in the next three years.

Risk warning: investment in thermal power falls short of expectations, project expansion falls short of expectations, commodity price fluctuations, etc.