Incident: On April 29, the company released its 2024 quarterly report, achieving operating income of 928 million yuan, an increase of 5.49%; net profit to mother of 204 million yuan, a year-on-year decrease of 9.27%; net profit after deducting non-return to mother of 192 million yuan, a year-on-year decrease of 10.39%.

Construction was consolidated or costs increased, and capital expenditure decreased significantly: in 1Q24, the company's net profit to mother fell 9.27%, or due to a year-on-year increase in related depreciation, amortization and loan interest expenses due to the conversion of part of the Fukuyama Phase II project in 2023; realized net cash flow from operating activities of 518 million yuan, an increase of 50.75% year on year, mainly due to an increase in cash received from sales products and provision of labor services; cash payment from purchasing fixed assets, intangible assets and other long-term assets was 3.20 yuan, down 33.88% year on year; cash flow from investment activities Net amount - $315 million. Compared with the same period in 2023, the net outflow decreased by $892 million. Capital expenditure has been significantly reduced, and the company's ability to pay high dividends has been further enhanced.

Primary waste in Guangzhou continues to grow, and the increase in capacity utilization is highly deterministic: with the support of high-parameter units and equipment automation, etc., the overall power generation efficiency of the company's units is high, and the power generation capacity per ton in 2023 reached 538.45 degrees per ton. From January to January 2024, the total amount of primary waste treated at Guangzhou's primary waste terminals was 1.8849 million tons, an increase of 5.33% compared with the same period in 2023 (1.7895 million tons), and the amount of primary waste treated continued to grow. In 2023, the company burned 646,000 tons of stale garbage. In the future, it will actively promote old garbage excavation and disposal projects such as the Xingfeng emergency landfill (equivalent to 3.5 million tons). Endogenous growth in primary waste is compounded by an increase in the contribution of old landfill waste. The company's capacity utilization rate is expected to continue to increase steadily, and profitability will be further enhanced.

Investment advice: Capital expenditure has been significantly reduced, and high dividend capacity has been further enhanced; with the dual support of endogenous growth in native waste and the increase in the contribution of waste from landfills, the company's capacity utilization rate is expected to increase steadily, and growth certainty is strong. According to business conditions, the company's profit forecast is maintained. The company's EPS for 24/25/26 is expected to be 1.02/1.26/1.58 yuan/share, respectively, corresponding to the closing price of April 29, 2024, PE is 15/12/10 times, respectively, maintaining the company's PE 18 times 2024, and the target price is 18.36 yuan/share, maintaining a “careful recommendation” rating.

Risk warning: Policy progress falls short of expectations; local financial pressure; there is uncertainty about endogenous growth in native waste.