Earnings rose 22% in the first half of 2023 compared with the same period last year. Everbright Water announced its results for the first half of 2023, with revenue of HK $3.08 billion, down 11% from the same period last year, and profits attributable to the parent company of HK $632 million, up 22% from the same period last year. The company pays an interim interest rate of HK6.63 cents and a dividend ratio of 30%. The profit growth mainly benefited from 1) the negative impact of the increase in operating income and the decline in revenue from construction services; 2) the overall gross profit margin increased by 11 percentage points to 46%; 3) the group implemented "cost reduction and efficiency efficiency". Administrative and other operating expenses fell 13% compared with the same period last year.

Ten new sewage treatment projects were obtained during the period. In the first half of this year, the Group won a total of eight new projects, involving a total investment of 1.16 billion yuan, a new contract amount of 1.07 billion yuan, and a new water treatment scale of 180000 cubic meters per day. As of the end of June, the Group had a total of 173water projects with a total water treatment scale of about 7.43 million cubic meters per day. In the first half of this year, Everbright Water Services has started construction of nine new projects with a design scale of 40,000 cubic meters of sewage per day, and four projects have been completed and put into operation with a design scale of 130000 cubic meters of sewage per day.

Performance will be focused. The following is the focus of Everbright's water performance meeting. 1) the operating gross profit margin in the first half of this year is 55%, which is 11% higher than that of 44% in the same period last year. The reasons for the increase include the implementation of "reducing costs and increasing efficiency", and the recognition of one-time factors including value-added tax and retroactive water price income. 2) the management expects to exclude the one-time factor and expect the operating gross profit margin to remain between 51% and 53% next year. 3) the refund rate of sewage treatment is 63%, which is lower than that of 69% in the same period last year. 4) Capital expenditure for the first half of this year is about HK $900 million, with an estimated HK $2 billion for the whole year.

The target price is HK $1.46. We forecast that Guangda's water business revenue in 2023 will be HK $6.87 billion, an increase of 2.2% over the same period last year, and a profit of HK $1.18 billion, an increase of 16.9% over the same period last year. According to our discounted cash flow model, the target price is 1.46 yuan, which is equivalent to 3.9 times the 2023 forecast price-earnings ratio and 9.6% forecast dividend yield.