The target price is 13.20 yuan per share, reiterating the "buy" rating

Shanghai Environmental 1H23 realized operating income / return net profit of 2.831 million yuan, an increase of 14.2 percent 9.4% compared with the same period last year. The increase in 1H23 revenue compared with the same period last year is mainly due to the increase in contracted design planning income and entrusted operating income. We maintain the 23-25 year homing net profit forecast of 590 million yuan. Considering that the company is the leader of solid waste treatment in Shanghai and the quality of the project in hand, we will give 2023 24.9xPE (reference to comparable company's 2023 Wind consensus forecast PE average 16.6x) with a target price of 13.20 yuan per share (previous value:

11.40 yuan per share, based on 21.5 x PE in 2023), reiterating the "buy" rating.

The amount of garbage entering the factory and the amount of electricity connected to the Internet declined slightly compared with the same period last year.

In terms of operating projects, as of June 30, the company had operated 27 domestic waste incineration projects, with a total of 6.76 million tons of incoming waste, a decrease of 2.5% compared with the same period last year (including commissioned operation of Laogang Phase I and Phase II). The power consumption of the Internet was 2.288 billion kWh, 7.6% less than the same period last year. The company invests, constructs and operates a municipal solid waste landfill project with a landfill capacity of 57400 tons. Operate 6 garbage transfer stations, with a total of 671400 tons of garbage; operate 4 sewage treatment plants, with a total treatment capacity of 183.9939 million tons, with an average daily capacity of 1.0165 million tons; operate 5 medical waste incineration projects (including entrusted operation), with a collection and transportation volume of 58800 tons and incineration capacity of 59700 tons.

A number of solid waste treatment projects are under construction, expanding environmental restoration and technical service projects are under construction. As of June 30, the Shaowu garbage power generation project is under construction, and the Xihe County garbage power generation project in Gansu Province is in the preliminary formalities stage. In addition, Lanling County and Songjiang District solid waste resources, Shanghai Tianma Medical waste Project is under construction. The company successfully expanded the garbage power generation project in Xihe County, Gansu Province in the first half of the year, taking the three light asset businesses of "planning consultation, ecological restoration, construction escrow" and "domestic waste, hazardous medical waste and sewage treatment" as the main line of development. undertake more than 20 site investigations and environmental restoration projects, and sign 157 new technical service contracts, laying a solid foundation for the company's transformation, upgrading and sustainable development.

The net profit rate decreased by 0.4pp year-on-year, the operating cash flow increased by 27% year-on-year, the company's 1H23 gross profit margin decreased by 3.3pp to 28.4% year-on-year, the expense rate decreased by 1.9pp to 13.6%, and the net profit rate decreased by 0.4pp to 12.8%. The net operating cash flow has increased from 282 million yuan of 1H22 to 359 million yuan. We expect that the commissioning of waste incineration projects will bring abundant operating cash inflows to ensure the company's sustainable development and provide strong support for new business development.

Risk tips: waste incineration project operational risk, waste incineration and sewage treatment operating costs rise, "environmental treatment +" business development is not as expected.