The performance of water environment comprehensive treatment service providers in Henan has increased rapidly. Founded in 2007, the company ploughs Zhengzhou and radiates Henan, and continues to expand around "big public, big environmental protection, big ecology". Its business covers the fields of water supply, sewage sludge treatment, reclaimed water utilization, central heating and comprehensive treatment of water environment. In recent years, the company's revenue has grown rapidly, and its net profit has remained stable. Its operating income has increased from 1.027 billion yuan in 2018 to 6.217 billion yuan in 2022, with a compound annual growth rate of 56.86%. The net profit of its mother has increased from 414 million yuan in 2018 to 429 million yuan in 2022, with an annual compound growth rate of 0.89%.

Sewage treatment capacity has been greatly improved, and water prices are expected to rise reasonably. By the end of 2022, the company has operated 21 sewage treatment plants with a daily sewage treatment capacity of 2.105 million tons. In March 2023, the company successfully acquired a 100% stake in the purification company owned by major shareholders. It is estimated that the sewage treatment capacity in Zhengzhou will be increased to 2.78 million tons per day, and the treatment capacity is expected to be expanded to 3.23 million tons per day in 2024. Zhengzhou is short of water resources, and its population and GDP are growing rapidly, which will continue to drive the demand for sewage treatment. With the implementation of bid raising and transformation, we believe that there will be a large increase in sewage treatment costs in Zhengzhou, and the company is expected to enjoy the double benefits of treatment scale + treatment unit price increase, driving rapid growth in performance.

To turn the sewage into resources and carry out comprehensive treatment of the water environment. There is a shortage of water resources and serious pollution in China, and the utilization of waste water resources is of great significance. according to the statistics of the Ministry of Housing and Urban-Rural Construction, the investment in urban sewage treatment and its recycling of fixed assets has exceeded 100 billion in 2020; the company actively carries out the business of reclaimed water utilization, and the follow-up development may speed up the development. At the same time, the company continues to develop water treatment projects, with a cumulative investment of more than 10 billion yuan, which is expected to fully benefit from the 100 billion-level Henan water treatment market.

Investment suggestion and valuation: as the regional water leader, the M & A purification company has doubled its sewage treatment capacity, fully benefited from the spring tide of water environment investment in Henan, and has both high growth and strong certainty. It is estimated that the company's revenue from 2023 to 2025 will be 8.15 billion yuan, 8.337 billion yuan and 8.534 billion yuan respectively, with revenue growth of 31.1%, 2.3% and 2.4% respectively, and net profit of 811 million yuan, 1.012 billion yuan and 1.139 billion yuan respectively, up 89.3%, 24.7% and 12.6% respectively. Reference to the water sector comparable company Zhongshan Public, Hongcheng Environment, Chongqing Water, Xingrong Environment 2024 WindPE consensus expected average value of 8.50x, covering for the first time, giving the company "increased" investment rating.

Risk hints: higher risk of interest-bearing debt ratio, higher risk of accounts receivable, lower-than-expected risk of investment in water environment treatment, and lower risk of sewage treatment fees.