Items:

On October 26, 2023, the company disclosed its third-quarter report for 2023. During the reporting period, the company achieved operating income of 8.962 billion yuan, down 6.74% from the same period last year; the net profit returned to the mother was 1.166 billion yuan, an increase of 34.53% over the same period last year; of which the single Q3 company realized operating income of 3.035 billion yuan, down 2.90% from the previous month and 12.66% from the same period last year; the net profit from the home was 476 million yuan, up 25.35% from the previous year and 48.56% from the same period last year.

Comments:

Revenue decreased slightly in the first three quarters, while profits improved greatly. From January to September 2023, the operating income reached 8.962 billion yuan, down 6.74 percent from the same period last year, of which the income from the main business was 8.728 billion yuan, down 7.14 percent from the same period last year. From January to September 2023, the company realized a net profit of 1.166 billion yuan belonging to shareholders of listed companies, an increase of 34.53% over the same period last year. The main reason for the decline in operating income compared with the same period last year is the decline in the scale of business income from solid waste projects, and the increase in net profit is due to the improvement in the price gap between purchase and sales of natural gas business in January-September 2023 compared with the same period last year, and the operation of energy business has improved.

Project orders have been completed one after another, and the operation business has maintained steady growth. From January to September in 2023, the solid waste business realized 4.608 billion yuan in main business income (12.13% compared with the same period last year), accounting for 52.80% of the main business income; the net profit was 830 million yuan (+ 10.68% compared with the same period last year), which is the company's main business. The waste incineration business operates efficiently and continues to expand, with revenue of 2.413 billion yuan, year-on-year + 15.66%, and gross profit margin of 50%. During the reporting period, the utilization rate of domestic waste incineration power generation capacity was about 120%, which was + 9pct compared with the same period last year; the effective operation hours of boilers exceeded 6100 hours; and the per ton power generation per ton of online electricity was 368kWh / 315kwh respectively, down 3.46% and 2.16% from the same period last year, mainly because the company opened up pipeline heating and long-distance mobile heating. In August 2023, the company added 4500 tons per day for waste incineration power generation, including 3300 tons per day for overseas projects (Bangkok, Thailand), which opened the exploration of international development. From January to September 2023, 781900 tons of external heating was achieved, an increase of 31.52 percent over the same period last year, and agreements on steam waste heat external heating for three waste incineration power generation projects in Pinghe, Langfang and Jinjiang were signed. Up to now, the company has achieved the signing of external heating business agreements for 9 waste incineration power generation projects. The revenue of the engineering and equipment business reached 824 million yuan,-59.20% compared with the same period last year, mainly due to the completion of project orders one after another.

The price difference between purchase and sale has improved, and the energy business has made a profit. The energy business realized 2.965 billion yuan in main business income from January to September 2023, accounting for 33.97% of the company's main business income, down 1.32% from the same period last year; the net profit was about 140 million yuan (considering headquarters cost sharing), an increase of about 220 million yuan over the same period last year. The main reason is that the price difference between purchase and sale of natural gas business in January-September 2023 has improved compared with the same period last year, and the operation of energy business has improved. The company's hydrogen production project from kitchen waste has been officially put into production, with a production capacity of about 2200 tons of hydrogen per year.

The water supply business operates effectively and the scale of drainage business expands. The water supply business achieved 709 million yuan in main business income from January to September 2023, accounting for 8.13% of the company's main business income, an increase of 0.29% over the same period last year. During the reporting period, the water loss rate was controlled at 8.36%, which was 1.04 pct lower than the same period last year. From January to September 2023, the main business income of the drainage business reached 446 million yuan, accounting for 5.11% of the company's main business income, an increase of 0.64% over the same period last year. The main reason for the increase in revenue from the main business of drainage business is that new sewage treatment plants have been put into operation in the second half of last year. During the reporting period, the company actively promoted the construction of the Northwest sewage treatment Plant (Phase II) and other three expansion projects (with a total scale of 95,000 square meters per day).

Investment advice: the company's gas sector is progressing smoothly in line with the price, so we maintain our profit forecast for 2023-2025. The company's net profit for 23-25 is expected to be 1.411 billion yuan, 1.664 billion yuan and 1.774 billion yuan, an increase of 23%, 18% and 7% over the same period last year. Considering that the company is the leader in the industry, combined with the average valuation of companies in the same industry, the company is given 13 times PE in 2023, corresponding to a target price of 22.49 yuan, maintaining a "strong push" rating.

Risk tips: solid waste projects landing, access to less than expected; intensified market competition; gas water supply business unit price decline; the impact of rising natural gas prices.