Event Overview: On August 24, the company released its semi-annual report for 2023. In the first half of the year, the company achieved operating income of 1,540 million yuan, an increase of 5.12% over the previous year; net profit of 351 million yuan, an increase of 4.95%; net profit of non-return income of 345 million yuan, an increase of 8.86% over the previous year. In the second quarter, the company achieved operating income of 675 million yuan, a year-on-year decrease of 16.15%; net profit of 187 million yuan, an increase of 13.07% over the previous year; net profit after deducting non-return net profit of 183 million yuan, an increase of 21.15% over the previous year.

Solid waste operation capacity has increased, and cash flow advantages are obvious: as of June 2023, the company's waste incineration power generation project has an operating capacity of 21,620 tons/day, with a total production capacity of 1,700 tons/day during trial operation and construction; food waste disposal has an operating capacity of 2,650 tons/day, and a production capacity of 670 tons/day under construction and preparation. In the first half of the year, the cumulative power generation and feed-in power generation of the company's projects were 1,428 billion kilowatts and 1,207 billion kilowatts, respectively, up 4.28% and 5.20% year on year, and the factory's own electricity consumption rate fell to 15.48% (16.22% in the same period last year). Project operation capacity was further enhanced; garbage storage volume was 4.6426 million tons, up 12.84% year on year; and grease extraction volume was 12,000 tons, up 24.72% year on year. Among them, the cumulative power generation and feed-in power generation of the company's projects in the second quarter were 734 million kilowatts and 623 million kilowatts, respectively, up 4.61% and 5.27% year-on-year respectively. At the same time, the company has 14 external heating projects. The total heating capacity in the first half of 2023 was 531,000 tons, an increase of 1.13% over the previous year. With the impact of public health incidents eliminated, the company's household waste and food waste disposal volume increased markedly, and the overall operation capacity of the project was further enhanced. In the first half of 2023, the company achieved net cash flow from operating activities of 469 million yuan, an increase of 29.55% over the previous year. The cash flow was abundant, laying the foundation for the company's subsequent business expansion.

Lithium battery recycling continues to advance, and recycled rubber is expected to contribute incrementally: the company's lithium battery recycling business uses a production model with few in-house production and multiple processing generations. In the first half of 2023, Lixin New Materials Co., Ltd.'s own production and processing output of cobalt-nickel-lithium totaled 925.33 tons. In February 2023, Wangneng City Mining Technology, a wholly-owned subsidiary, and Guanying New Energy signed a “Memorandum of Cooperation” with the aim of deepening collaboration in the power battery recycling industry. In January 2023, the company bought 13% of the shares of Nantong HuiLi for 55.9 million yuan (tax included), holding a total of 90% of the shares of Nantong HuiLi. The first phase of the 30,000-ton butyl recycled rubber production line of Nantong Huili has been officially put into operation, and the second phase of the 70,000-ton butyl reclaimed rubber, tire reclaimed rubber and vulcanized rubber powder production line is still under construction. At present, Nantong HuiLi has resumed normal dealings with many brand customers, and the business is progressing steadily.

Investment suggestions: The company's solid waste operation capacity continues to increase, demonstrating cash flow advantages; the lithium battery recycling business uses less self-production and multi-generation processing models, and the recycled rubber business is expected to contribute to increased performance. Based on the company's business situation and adjusted the company's profit forecast, it is estimated that the 23/24/25 EPS will be 1.83/1.99/2.23 (previous value: 1.98/2.18/2.42 yuan/share), respectively, and the corresponding closing price PE on August 24 will be 8.3/7.6/6.8 times, respectively. It gave 23 years of 11 times PE, with a target price of 20.13 yuan/share, maintaining the “Cautious Recommendation” rating.

Risk warning: industry policy risks; commodity price fluctuations; industry competition intensified; project commissioning fell short of expectations.