This report is read as follows:

2023H1 revenue increased 7% compared with the same period last year, and the results were slightly lower than expected due to depreciation and amortization of assets and higher electricity prices. There is still room for 16% growth in water supply and drainage during the 14th five-year Plan, and production capacity can be increased. At the same time, it is expected to usher in a new price adjustment cycle.

Main points of investment:

Maintain the "overweight" rating. We maintain the forecast net profit of the company from 2023 to 2025 is 19.60,21.84 and 2.313 billion yuan respectively, and the corresponding EPS is 0.41,0.45,0.48 yuan respectively. The company's 14th five-year Plan

During this period, there is still room for 16% growth of water supply and drainage capacity, and the layout of the national growth can be expected. At the same time, the company's water supply and drainage is expected to usher in a new price adjustment cycle. Maintain the target price of 6.86 yuan and maintain the "overweight" rating.

The capacity of water supply and drainage increased by 160,000 tons per day, revenue increased by 7% compared with the same period last year, and the performance was slightly lower than expected due to factors such as increased depreciation and amortization of water supply and drainage assets and rising electricity prices. 1) 2023H1 realized revenue of 3.698 billion yuan, an increase of 7.12% over the same period last year, and net profit attributable to 712 million yuan, down 24% from the same period last year. The aquaculture capacity of supply and discharge increased by 160,000 tons per day, and the sludge disposal capacity increased by 50 tons per day to 2042 tons per day. The main reasons for the decline in attributable net profit are: depreciation and amortization of water supply and drainage assets, asset leasing fees of sewage treatment enterprises, rising electricity prices and declining profits of user installation business of water supply enterprises. 2) the net operating cash flow was 1.21 billion yuan, an increase of 23% over the same period last year. Mainly received Chongqing financial advance sewage treatment settlement funds and Bishan District financial sewage treatment funds.

There is still room for growth in the target production capacity of the 14th five-year Plan, and it is expected to expand business growth across the country. As of 2023H1 supply and discharge of aquatic capacity, a total of 7.99 million tons per day, there is still room for 16% growth from the company's "14th five-year Plan" target.

We believe that the company will expand its national business on the basis of Kunming asset acquisition and growth is expected.

The price of the sixth phase of sewage treatment services has been approved, and the water supply will cooperate with the local authorities to establish a price mechanism. 1) at present, the price of the sixth phase of sewage treatment has been approved by the Chongqing Municipal Finance Bureau. 2) since April 2023, the company has implemented the new standard for water supply. The company will cooperate with the water supply price department to establish a water supply price mechanism in response to document No. 129 of the State Administration letter, and submit an application for water supply price adjustment in due course.

Risk tips: pharmaceutical price fluctuations, electricity price fluctuations, industry policy changes and so on.