The net profit of 1H23 is + 1% compared with the same period last year, and the profit forecast and target price of Xingrong Environment are lowered: 1H23 realized revenue of 3.48 billion yuan, + 10%, net profit of 850 million yuan, + 1%, + 10%, net profit of 1.9 billion yuan, + 10%, 470 million yuan,-4%. The increase in cost has led to a decrease in the gross profit margin of water supply and sewage treatment, and the 23-25 net profit forecast for return to home is estimated to be 1,751, 19.12, 2.052 billion yuan (the previous value is 18.29, 20.27, 2.94 million), EPS0.59/0.64/0.69, and 9 percent for three-year CAGR. The company's current stock price corresponds to a 23-year comparable PE average of 10x for 9.5pm 8.7xPe for 23 years. The company mainly operates in the region where the population continues to inflow, and the business growth expectation is clear. It gives the 23-year target PE 10x, the target price 5.9 yuan (the previous value is based on 10x 23e PE), and maintains the overweight rating.
Water supply: the increase in cost led to a decrease in gross profit margin, and the revenue from pipe network projects greatly increased. The company disclosed that the operation and construction scale of the water supply project at the end of June 23 was about 4.1 million tons per day (2022: 4.1 million tons per day). 1H23 company tap water production and sales revenue + 7% year-on-year, thanks to increased water supply capacity; gross profit margin year-on-year-3.3pp to 47.0%, mainly because raw material costs rise faster than income growth. The revenue of 1H23 pipe network project is + 34% compared with the same period last year, mainly due to the low base effect in the same period last year. With the commissioning of new projects and capacity climbing, we estimate that in 23-25, the revenue of tap water system and sales will be 24.5 billion yuan and 2.70 billion yuan respectively, and the revenue of pipe network project will be 1.27 billion yuan and 1.29 billion yuan respectively.
Sewage treatment: the operation of the new plant increases the revenue scale, and the rising cost is a drag on profitability. The company disclosed that the operation and construction scale of the sewage treatment project at the end of June 23 was about 4.6 million tons / day (2022:
4.5 million tons / day), the operation and construction scale of the reclaimed water utilization project is 1.2million tons / day. 1H23 sewage treatment revenue + 9% year-on-year, thanks to the increase in sewage treatment capacity and bid-raising transformation brought about by the treatment unit price increase compared with the same period last year; gross profit margin-6.1pp to 35.9%, mainly due to higher increases in energy and depreciation costs. With the continuous commissioning of projects under construction, we estimate that the revenue from sewage treatment in 23-25 will be RMB 2.87 billion.
Environmental protection: the potential scale of kitchen waste disposal project is considerable, and the scale of waste incineration power generation and construction at the end of June 23 is 12,000 tons / day, with a proposed construction scale of 0.24 million tons / day; landfill leachate treatment operation and construction scale of 8430 tons / day; sludge disposal operation and construction scale of 2316 tons / day, proposed construction scale of 1084 tons / day; kitchen waste disposal operation and construction scale of 1550 tons / day. 1H23 waste incineration power generation revenue + 9%, landfill leachate treatment revenue + 2% year-on-year. Taking into account the capacity climbing, we estimate that in 23-25, the revenue from waste incineration power generation and landfill leachate treatment will be 5.8 million yuan, 6.7 billion yuan and 5.8 million yuan respectively.
Risk hint: the risk of electricity price reduction of waste incineration power generation; the project production schedule is not as expected.