The share of operating revenue continues to rise, and revenue performance is growing steadily. The company released its 2023 annual report and 2024 quarterly report: in 2023, it achieved revenue of 6.522 billion yuan (+2.61%), net profit to mother of 1,075 million yuan (+1.78% year over year); 24Q1 achieved revenue of 1,357 million yuan (-10.74% year over year), and net profit to mother of 223 million yuan (-27.33% year over year). The company's share of operating revenue increased. Solid waste and sanitation/water treatment/expressways achieved revenue of 26.65/3.13/1,439 billion yuan in 23, accounting for a total share of 68% of total revenue (previous value: 56%). The share of engineering business revenue has declined to 26.97%, driving the company's gross margin to 40.20% in '23.

The total waste incineration capacity of 28,600 tons/day has been put into operation, and capital expenditure is expected to narrow in the future. According to the annual report, all 32 projects in the company's main waste incineration business have been put into operation (5 new projects were put into operation in '23), with a total production capacity of 28,550 tons/day; there are no construction projects/plans for water supply or highways. Currently, the production capacity under construction is mainly concentrated on: ① the hazardous waste project has a production capacity of 2.51 million tons/year; ② the sewage treatment production capacity under construction is 221,000 tons/day. Looking at the present time, the company's rapid investment period has passed, and capital expenditure is expected to continue to narrow in the future.

The dividend rate has increased, and the combination of multiple financing instruments has reduced financial costs. In 2023, the company plans to distribute a dividend of 0.25 yuan per share, corresponding to a total dividend of 162 million yuan, a dividend payment ratio of 15.05% (previous value of 10.03%), and a dividend rate of 2.22% (previous value of 1.74%). In addition, the company reduced financial costs through various financing instruments. The company issued 2 ultra-short-term financing notes and 1 short-term corporate bond in '23. The coupon interest rate was as low as 2.65%, and the company's convertible bonds were accepted.

Profit forecasting and investment advice. We expect the company's 2024-2026 net profit of 11.30/11.92/1,255 billion yuan, corresponding to the latest PE of 7.07/6.71/6.37 times. High-quality utility operators, with outstanding potential for asset revaluation, give the company 10xPE for 24 years, corresponding to a reasonable value of 17.60 yuan/share, and maintain a “buy” rating.

Risk warning. Construction progress is low expectations; return on new construction projects is declining; risk of issuing subsidies, etc.