Key points of investment:

Maintain an “Overweight” rating. According to the performance report, the company's solid waste business remains steady, but the renewable resources business is under pressure. We lowered our forecast net profit for 2023-2025 to 5.90 (-24%), 7.39 (-16%), and 8.09 (-19%) billion yuan, corresponding to EPS of 1.37, 1.72, and 1.88 yuan. The valuation switch gave the company 11 times PE in 2024, and the target price was lowered to 18.92 yuan.

The 2023 results fell 18% year over year, falling short of market expectations. The company released its 2023 performance report. In 2023, it achieved revenue of 3.195 billion yuan, a year-on-year decrease of 5%; vested net profit of 590 million yuan, a year-on-year decrease of 18%; and deducted non-vested net profit of 590 million yuan, a year-on-year decrease of 12%. The decline in the company's revenue was mainly due to a decrease in operating income from the lithium battery recycling business and BOT project construction in 2023; the decline in profit was mainly due to losses in the resource recycling business sector.

The renewable resources business is under pressure. 1) In the lithium battery recycling business, due to falling metal prices, Deqing Lixin (60% shareholding ratio) lost 0.35 million yuan due to insufficient capacity utilization, and prepared 80 million yuan for reduced inventory prices due to falling metal prices, and prepared 0.15 million yuan for impairment of goodwill. 2) Waste rubber recycling business: Nantong Huili (90% shareholding ratio) lost 25 million yuan due to loss of customers after the main plant was relocated and production stopped in '22, and slow customer return in '23 caused insufficient capacity utilization.

3) The company's lithium battery recycling business is at a low point, and customers are gradually returning to the recycled rubber business, and they are looking forward to improving.

The solid waste business is operating steadily. The company's main waste incineration business maintains steady operation. In 2023, Jingzhou Wangneng Phase II was officially put into operation, and 700 tons of environmental protection were put into trial operation in Dingxi; in 2023, 400 tons of Suzhou Phase II Kitchen, 100 tons of Bengbu Phase II Kitchen, and 300 tons of Huzhou Phase II were put into operation; 60 tons of Luyi Kitchen and 100 tons of Deqing Kitchen Phase II were put into trial operation.

Risk warning: Flue gas equipment sales, solid hazardous waste project management, new energy business development falling short of expectations, etc.