Event: The company released its three-quarter report for 2013. The first three quarters of 2023 achieved operating income of 3,068 billion yuan, +78.13%; realized net profit of 828 million yuan, +21.43%; realized investment income of 652 million yuan, +15.62% over the same period; and realized net profit of 277 million yuan after excluding investment income from GF Securities, +82.83%. On a quarterly basis, the company achieved operating income of 1,212 billion yuan, +80.08% year-on-year; net profit of 256 million yuan, +73.86% year-on-year.

The engineering business continues to perform well, and waste-to-energy generation contributes to increased solid waste revenue. The company's revenue and profit increased significantly in the first three quarters. The main factors were: 1) The engineering sector increased water pollution control engineering business, and the project business revenue increased significantly. On October 31, 2023, the company jointly won the bid for the Zhongshan Green Island EPC general contract project, with a bid amount of 179 million yuan. Market competitiveness continued to strengthen; 2) the solid waste sector increased revenue from the waste-to-energy business. Currently, the company is promoting the acquisition of waste-to-energy assets of Changqing Group. It is expected that the solid waste sector will be further strengthened in the future; 3) the environmental protection and water sector will make every effort to promote “water supply and asset integration” in an orderly manner Implement urban factory network integration projects.

It is proposed to transfer financial services and continue to focus on the development of the main business. On October 18, 2023, the company announced that in order to promote the implementation of the 2021-2026 development strategy plan and focus on the development of the main business, the company plans to divest financial services that are less related to the main business, and plans to shift 87.50% of the shares of Zhongshan Microfinance Company to Zhongshan Financial Holdings, with a transaction consideration of 216 million yuan. The completion of this transaction will help the company focus on the development of its main business, optimize its financial structure, and obtain good cash flow. We believe that if the subsequent transaction with Changqing Group is successfully implemented, the company's “three main and one auxiliary” business layout of environmental water, solid waste sanitation, new energy, and engineering technology will be further optimized, and the company's high-quality development will continue to be promoted.

Actively promote plans to increase equity holdings, which are intended to be used to implement employee incentives in the future. The company began the share repurchase process in July 2022. As of October 26, 2023, Zhongshan Investment Holding Group, the controlling shareholder of the company, has increased its holdings of the company's shares by 8.124 million shares through centralized bidding, accounting for 0.55% of the company's total share capital. The repurchased shares are intended to be used to implement employee stock ownership plans or equity incentive plans in the future. The company actively implements plans to increase equity holdings, which is conducive to enhancing investors' confidence in the company, promoting the company's stock price to match internal value, and demonstrating shareholders' continued optimism about the company's future development.

Profit forecast: Maintaining the company's “buy” rating. We expect the company to achieve operating income of 4318/49.42/5.493 billion yuan and net profit of 15.72/18.38/21.34 billion yuan in 2023-2025, corresponding to PE of 6.86x/5.87x/5.05x, respectively.

Risk warning: changes in the macroeconomic situation at home and abroad have exceeded expectations; water prices have risen less than expected; business expansion has fallen short of expectations; the growth rate of the scale of new energy has fallen short of expectations; changes in investment income have exceeded expectations; profit forecasts and valuation models have fallen short of expectations; profit forecasts and valuation models have fallen short of expectations