Summary of events: on October 26, the company released its quarterly report of 2023, with operating income of 2.4 billion yuan in the first three quarters, an increase of 3.06% over the same period last year; net profit of 517 million yuan, down 4.35% from the same period last year; and net profit of 508 million yuan, an increase of 0.88% over the same period last year. In the third quarter, the company achieved operating income of 860 million yuan, down 0.43% from the same period last year; net profit from home was 165 million yuan, down 19.49% from the same period last year; and net profit from non-return was 163 million yuan, down 12.68% from the same period last year.

Solid waste business plays the role of "ballast stone", and cash flow continues to improve: in the first three quarters, due to losses in the resource recycling sector, the company's net profit declined, while revenue and profits from waste incineration and disposal business continued to grow. In the first three quarters of 2023, the domestic waste disposal business achieved an operating income of 1.726 billion yuan, an increase of 6.95 percent over the same period last year. The company completed a total of 2.75 billion kilowatt-hours of electricity generation, 1.831 billion kilowatt-hours of online electricity, and 6.4793 million tons of garbage (excluding restaurants and kitchens), up 1.89%, 2.38% and 7.85% respectively over the same period last year. Oil production was 19000 tons, an increase of 21.98%. As of June 2023, the company's waste incineration power generation project has an operating capacity of 21620 tons / day, with a total capacity of 1700 tons / day for trial operation and construction. In terms of project operation, the company's Panzhihua project and profit supervision project have all achieved an increase in treatment fees; 14 project companies have legalized the mixing and burning of industrial waste and improved the level of capacity utilization. In the first three quarters of 2023, the net cash flow generated by the company's operating activities was 819 million yuan, an increase of 27.07% over the same period last year.

Lithium recovery is under short-term pressure, and recycled rubber is expected to release: the company's lithium recycling business adopts a production mode of less self-production and multi-generation processing, with a total output of 1471.44 gold tons of cobalt, nickel and lithium in the first three quarters of 2023, with an operating income of 110 million yuan, down 31.34 percent from the same period last year. With regard to the recycled rubber business, Nantong Huili has resumed normal relations with customers of many brands, and the business is progressing steadily, with an operating income of 72 million yuan in the first three quarters of 2023, an increase of 1227.35% over the same period last year, contributing to the increase in performance.

Investment suggestion: the company's solid waste operation capacity continues to enhance, highlighting the advantage of cash flow; lithium recycling business uses less self-produced, multi-generation processing mode, recycled rubber business is expected to contribute to performance increment. According to the operating situation of the company, the profit forecast of the company is adjusted. It is estimated that the annual EPS of 23-24-25 will be 1.75max 1.86max 2.06 (the previous value 1.83max 1.99max 2.23RMB / share), corresponding to the closing price of PE on October 26th, which is respectively times that of 9-8-7. Given 11 times PE for 23 years, with a target price of 19.25 yuan per share, maintaining the "cautious recommendation" rating.

Risk hints: industry policy risks; commodity price fluctuations; intensified competition in the industry; project production is not as expected.