The company recently issued an announcement: 1) semi-annual report of 2023: in the first half of the year, the company realized revenue of 883 million yuan, down 6.27% from the same period last year, realized net profit of 243 million yuan, an increase of 26.56% over the same period last year, and realized net profit of 138 million yuan after deduction, down 12.46% from the same period last year. 2) it is proposed to cooperate with Guoxin Hongsheng Private Equity Fund Management Co., Ltd. to establish a partnership of Shenzhen Peng Harrier Hongsheng Green Industry Private Equity Fund, with a fund size of 400 million yuan and a company investment of 280 million yuan (70%) as a limited partner. In this regard, our comments are as follows:

Main points of investment

Q2's single-quarter performance began to recover, during which expenses affected profit growth. In the first half of the year, the company realized revenue of 883 million yuan, down 6.27% from the same period last year, and realized net profit of 243 million yuan, an increase of 26.56% over the same period last year. The main reason why the growth rate of net profit is higher than the growth rate of revenue is that the company's transfer of shares in Jiangsu Penghao Water and Jiangyin Pengharrier Co., Ltd. increased investment income by 7974.94 million yuan and 14.856 million yuan respectively. The attributable net profit after deducting Fei was 138 million yuan, down 12.46% from the same period last year. The company's overall performance was in line with expectations, of which Q2 achieved revenue of 530 million yuan in a single quarter, an increase of 3.28% over the same period last year, and a net profit of 77 million yuan after deduction, down 10.67% from the same period last year.

From a sub-business point of view: the revenue of the investment and operation business was 405 million yuan, an increase of 2.32% over the same period last year, the revenue of the project contracting business was 381 million yuan, an increase of 49.15% over the same period last year, and the revenue of the equipment production and marketing business was 43.5082 million yuan, down 41.19% from the same period last year. The company's comprehensive gross profit margin was 34.62%, an increase of 1.92pct compared with the same period last year.

The company's period expense rate is 14.60%, which is higher than the same period last year. The sales / management / finance / R & D expense rate is 1.26%, 7.44%, 4.56%, 1.35%, respectively, and increases 0.14/1.87/1.15/0.44pct respectively compared with the same period last year. The increase in expense rate affects the growth of the company's net profit.

Expand the biodiesel business based on environmental protection, and wait for the water assets revaluation company to mainly engage in water investment and operation. by the end of 2022, the company has put into operation 18 sewage treatment projects, with an average treatment scale of 85.23 million tons per day, and 1 tap water project. with an average water supply of 51.08 million tons per day, it is one of the leading enterprises in the domestic sewage treatment industry. The company is based on sewage treatment business, but also actively expand solid waste, biodiesel and other businesses. In March 2023, the company cooperated with Hongye Petrochemical Co., Ltd. to produce 150000 tons of biodiesel per year, and plans to build a second phase of 150000 tons of biodiesel project within 2 years. Biodiesel business is expected to become a new growth pole.

In addition, the company chooses the right to transfer the franchise of the sewage treatment project at the right time, and it is also a business strategy to obtain investment income. In April 2023, the company transferred 100% equity of Jiangsu Peng Harrier to CGN Environmental Protection at a transfer price of 299 million yuan and a transfer price / net asset of 1.82, which is much higher than the company's PB 1.08 on August 11, 2023. On the one hand, the transfer of franchise rights can recover funds to obtain additional investment income, which can increase other business investment, on the other hand, it can also allow the company's water assets to be revalued.

To set up an investment fund for the environmental protection industry to cultivate new performance growth points in order to make full use of the resource advantages of professional investment institutions, explore and invest in high-quality projects of the environmental protection industry chain, and obtain investment income, the company and Guoxin Hongsheng Private Equity Fund Management Co., Ltd. set up an investment fund with a total scale of 400 million yuan and an initial contribution of 100 million yuan. The fund focuses on hard science and technology projects in domestic and foreign environmental protection industry digitization, energy conservation and environmental protection, hydrogen energy, biodiesel, resource recycling and other related fields. Guoxin Hongsheng is a wholly-owned private equity fund management subsidiary of Guoxin Securities, with professional investment ability, and won the title of TOP100 (2017, 2020). Guoxin Hongsheng has formed a relatively complete investment industry chain in the fields of new generation information technology, new energy and new materials, high-end manufacturing and intelligent technology. by the end of 2022, Guoxin Hongsheng assets management scale of nearly 10 billion yuan. Its funds have invested in a total of 124 private equity (PE) projects, of which 42 IPO withdrew (including mergers and acquisitions). The establishment of an investment fund by the company and Guoxin Hongsheng will help to make full use of the resource advantages of professional investment institutions, explore and invest in high-quality projects in the environmental protection industry chain, and cultivate new performance growth points.

Profit forecast

It is predicted that the net profit of the company from 2023 to 2025 is 3.97,3.84,428 million yuan respectively, and the EPS is 0.50,0.49,0.54 yuan respectively, and the current stock price is 12 times, 12 times and 11 times corresponding to PE respectively. We are optimistic that the company's water business is growing steadily, biodiesel business is more flexible, covering for the first time, and the company is given "buy" investment rating.

Risk hint

The risk of project acquisition and promotion that is less than expected, the risk of increasing accounts receivable, the risk of biodiesel business promotion being lower than expected, the risk of industrial fund being lower than expected, the risk of intensifying industry competition, the risk of macroeconomic downside, etc.