The net profit of homecoming increased by 6% in the first three quarters compared with the same period last year.

Chengfa Environment released three quarterly reports that in 2023, Q1-Q3 realized revenue of 4.808 billion yuan (yoy+13.59%), net profit of 878 million yuan (yoy+5.64%) and non-net profit of 869 million yuan (yoy+8.67%). Among them, Q3 realized revenue of 1.572 billion yuan (yoy+6.32%,qoq-8.36%) and net profit of 284 million yuan (yoy+13.93%,qoq-0.98%), which was 6% lower than Huatai's expected lower limit (Huatai expected: 3.01-330 million yuan). To maintain the profit forecast, we estimate that the EPS of the company from 2023 to 2025 will be 1.95,2.14,2.36 yuan respectively, and the EPS of solid waste / highway in 2023 will be 1.200.75 yuan. Comparable company Wind unanimously expected PE mean 9.2x/9.7x in 2023, considering that there is some uncertainty in the expansion of solid waste projects outside Henan Province and overseas, giving solid waste / highway 2023 PE 7.4x/9.7x, corresponding to the target price of 16.14 yuan (the previous value is 16.26 yuan), corresponding to 2023 PE 8.3x, maintaining the "buy" rating.

Accounts receivable increased by 54% year-on-year, and operating cash flow increased by 19% year-on-year. In the first three quarters, the company's accounts receivable / contract assets increased by + 54% compared with the same period last year to 2.55 billion yuan, mainly due to the increase in sales and unsettled services. The net operating cash flow was + 19% to 1 billion yuan compared with the same period last year, mainly due to the increase in cash received from the sale of goods and services. In addition, the company plans to issue 2.3 billion yuan of convertible bonds to invest in solid waste and sewage treatment projects such as garbage power generation in Yingshan County, Luotian County, as well as to repay bank loans. after the issuance of convertible bonds, it is expected to enhance the company's capital strength and further improve cash flow.

It has been confirmed that subsidized income accounts for less than 5% of total revenue in garbage power generation.

According to the September 25 announcement, as of June 30, the company had put into operation a total of 32 waste power generation projects, of which 13 were included in the subsidy catalogue and 19 were not included in the subsidy catalogue. 13 entered the subsidy review process and 6 competitive allocation projects (connected to the grid after 2022). Subsidy income is not recognized for competitive allocation projects, and subsidy income is recognized for other projects. In 21-22, the company has confirmed that the subsidy income is 0.43 billion yuan, and the 1H23 is 133 million yuan, accounting for no more than 5% of the income of each period, which has little impact on the company's operation.

Maintain a "buy" rating with a target price of 16.14 yuan

We estimate that the EPS of the company from 2023 to 2025 will be 1.95,2.14,2.36 yuan respectively, and the EPS of solid waste / highway in 2023 will be 1.20 amp 0.75 yuan. Comparable company Wind unanimously expected PE mean 9.2x/9.7x in 2023, considering that there is some uncertainty in the expansion of solid waste projects outside Henan Province and overseas, giving solid waste / highway 2023 PE 7.4x/9.7x, corresponding to the target price of 16.14 yuan (the previous value is 16.26 yuan), corresponding to 2023 PE 8.3x, maintaining the "buy" rating.

Risk hint: waste incineration project operation risk, operation efficiency improvement is not as expected, engineering business development is not as expected.