Events: The company released its 2023 three-quarter report. The company achieved operating income of 2.4 billion yuan in the first three quarters, an increase of 3.06% over the previous year; net profit of 517 million yuan, a decrease of 4.35% over the previous year; net profit after deducting 508 million yuan, an increase of 0.88% over the previous year. In 23Q3, the company achieved operating income of 860 million yuan, a year-on-year decrease of 0.43%; net profit of 165 million yuan, a year-on-year decrease of 19.49%; net profit after deducting non-return net profit of 163 million yuan, a year-on-year decrease of 12.68%.

The waste incineration and disposal business is running steadily, and the cash flow continues to improve. According to the company's main business data announcement for the third quarter of 2023, from January to September 2023, the relevant subsidiaries of the company completed a total of 217,4561 million kilowatts of power generation, 183,082558 million kilowatts of feed-in electricity, an average feed-in electricity price of 0.54 yuan/kilowatt hour (excluding tax), a total amount of settled electricity of 183,082558 million kilowatts, and garbage storage volume of 7.019,500 tons (including household waste, food, etc.), of which 6.4793 million tons of household waste were collected, and cooking oil extraction in January-September 19,033.14 tons.

The company has 14 projects with simultaneous heating, with a total heating capacity of 705,700 tons. Revenue and profit from the main business, waste incineration and disposal business, grew steadily. Among them, domestic waste disposal revenue was 1,726 million, up 6.95% year on year; food waste disposal revenue was 297 million, down 0.64% year on year. In the first three quarters of 2023, the net cash flow from the company's operating activities was 819 million yuan, an increase of 27.07% over the previous year, and the cash flow continued to improve.

Lithium battery recycling is under pressure in the short term, and recycled rubber continues to contribute to new growth. In order to cope with the impact of rising raw material prices, the company's lithium battery recycling business adopted a production model with less self-production and multi-generation processing. In the first three quarters of 2023, Lixin New Materials Co., Ltd. produced and processed cobalt-nickel lithium with a total output of 1,471.44 gold tons, achieving revenue of 110 million yuan, a year-on-year decrease of 31.34%; short-term performance was under pressure. The recycled rubber business continued to contribute new growth, achieving revenue of 72 million yuan in the first three quarters of 2023, an increase of 1227.35% over the previous year.

Active dividends are expected to be revalued and fully reflect corporate responsibility. According to the company's announcement on the profit distribution plan for the first three quarters of 2023, the board of directors proposed that the profit distribution plan for the first three quarters of 2023 be a cash dividend of 2 yuan (tax included) for every 10 shares, with a total cash distribution of 85.9 million yuan. After this profit distribution, the company's cumulative cash dividends for three consecutive years accounted for 67.15% of the average annual distributable profit in the parent company's statements, exceeding the requirements in the shareholder return plan formulated by the company. This dividend can better reward shareholders. At the same time, we believe that with the gradual commissioning of the company's ongoing projects and the steady increase in operating assets, the company is expected to receive a revaluation.

Investment advice and valuation: The company's main garbage disposal business is growing steadily, and lithium battery recycling is under pressure in the short term. According to the company's actual business situation, we adjusted the company's profit forecast. The estimated revenue from 2023 to 2025 was 3.404 billion yuan, 3,957 billion yuan, and 4.537 billion yuan, respectively, with growth rates of 1.6%, 16.2%, and 14.7%, respectively, and net profit of 721 million yuan, 835 million yuan, and 906 million yuan respectively. The corresponding PE is 8.86X, 7.66X, and 7.05X, maintaining the “buy” investment rating.

Risk warning: Project progress falls short of expectations; risk of electricity price reductions; metal price fluctuations; policy progress falls short of expectations; lithium battery recycling market falls short of expectations.