The performance of China's leading provider of integrated environmental solutions has maintained steady growth. Founded in 1999, the company has focused on solid waste pollution comprehensive treatment, sludge sewage and water environment comprehensive treatment and environmental restoration business for many years. Mainly for local government departments, large enterprises and other customers to provide integrated environmental solutions that integrate scheme design, equipment development, project construction and operation services. In 2022, the company realized operating income / deducted non-return net profit of 1.277 billion yuan respectively, an increase of 32.67% and 31.88% respectively over the same period last year, mainly due to the company's active expansion of the market and the increase in business scale; Q1 in 2023, the company realized operating income of 226 million yuan, an increase of 7.83%; and realized home net profit of-1 million yuan, with a loss significantly narrowed compared with the same period last year.

We will continue to strengthen R & D investment and build a core technology system. The company continues to carry out independent innovation and has made rich technical achievements, and has mastered the core technical systems such as the construction of solid waste pollution barrier and remediation system, "mud-film symbiosis" integrated village sewage system solution, process package, and so on. it can provide customized overall solutions according to the characteristics of pollutants and the specific needs of customers. In 2022, the company's R & D investment totaled 43 million yuan, an increase of 24.38%, and the proportion of R & D personnel increased as well as 1.88pct. Continuous R & D investment can improve the company's scheme design ability and become an important competitiveness in obtaining orders.

Actively open up the regional market, the scale of orders continues to expand. After years of development, the company has accumulated rich project management experience and successful cases in the field of solid waste pollution barrier repair and water environment remediation. In 2022, while consolidating the dominant market position in Anhui Province, the company aims at key regional markets to establish strategic partnerships with customers to further increase market share.

With the continuous strengthening of the influence of the industry, the company has gradually realized the transformation from a professional contractor to a general contractor, and the scale of orders has been constantly expanding. in 2022, the company has achieved 1.871 billion yuan in new orders, including 3 projects with more than 100 million yuan.

It is proposed to acquire no less than 51% stake in Honghui Technology to create a new curve of business growth. In June 2023, the company announced that it intends to acquire a 51 per cent stake in Honghui Technology in cash, with an estimated transaction value of Rmb1.53-300 million. Honghui Science and Technology has a complete thermal insulation and energy-saving materials industry chain, including aerogel thermal insulation materials, vacuum energy-saving materials, fiber felt thermal insulation materials three modules.

Through this acquisition, the company will make use of its business advantages and customer resource coverage in the field of energy conservation and environmental protection, extend the industrial chain, create new business growth points, and improve the company's profitability and industry competitiveness.

Profit forecast: from 2023 to 2025, we estimate that the operating income of the company will be RMB 1.512 trillion, the net profit of homing will be RMB 0.52 trillion, and the corresponding P / E ratio will be 39.45x/33.02x/30.28x, which will be covered for the first time and rated as "overweight".

Risk tips: domestic and foreign macro situation changes more than expected, accounts receivable can not be recovered in time and bad debts occur, industry competition intensifies, M & A progress is not as expected, profit forecast and valuation model is not as expected, etc.