Target price is 16.48 yuan, maintaining a “buy” rating

Chengfa Environmental released its semi-annual report. In 2024, H1 achieved revenue of 2.891 billion yuan (yoy -10.66%), net profit of 0.49 billion yuan (yoy -17.44%), deducting non-net profit of 0.484 billion yuan (yoy -17.45%).

Among them, Q2 achieved revenue of 1.534 billion yuan (yoy -10.59%, qoq +13.02%) and net profit of 0.267 billion yuan (yoy -6.86%, qoq +19.87%). Lowering the environmental protection project revenue forecast, we expect the company's 2024-2026 net profit of 1.079/1.173/1.278 billion yuan (previous value of 1.172/1.23/1.329 billion yuan), of which net profit from environmental protection business/expressways was 0.552/0.527 billion yuan in 2024, comparable to the average PE expected by the company Wind in 24 to 10.0/11.7 times. Considering the uncertainty of environmental protection business development outside of Henan Province and overseas, give Environmental protection business/highway is 8.0/11.7 times PE in 24 years, the target price is 16.48 yuan (previous value 16.17 yuan), maintaining the “buy” rating.

Solid waste revenue +25%, freeway and environmental protection solution integrated service revenue declined by business, 1) solid waste business: 24H1 revenue 1.609 billion yuan (yoy +24.65%), gross profit margin 43.44% (yoy-2.18pp); 2) Expressway: revenue -10.28% to 0.641 billion yuan, gross profit margin 54.82%, year-on-year -1.03pp; 3) Environmental protection solution integrated services: revenue -62.92% to 0.346 billion yuan, Gross profit margin 17.89%, -1.96pp. The company's 24H1 net operating cash flow was 0.635 billion yuan, -8.51% year over year. Environmentally-friendly operations and highway assets are expected to bring continuous and stable cash flow.

Waste-to-energy production capacity reached 0.0286 million tons/day, and feed-in electricity capacity was +16%. As of June 30, '24, the company has 32 active projects in the domestic waste incineration power generation field, all of which have been put into operation, with a total scale of 28,550 tons/day (excluding participating companies). Among them, a total of 22,350 tons/day are non-competitive allocation projects; of 22,350 tons/day, 9,900 tons/day have been included in the national renewable energy subsidy list.

The H1 entrance garbage volume was 5.732 million tons, up 17.9% year on year, feed-in electricity volume was 1.4 billion degrees, up 16.4% year on year, and external steam supply was 0.667 million tons, +29.4% year on year. The main reason was the gradual release of production capacity for new commissioned projects.

Highway tolls and average daily traffic declined slightly

Xu Pingnan Company is responsible for investing in and operating the company's highway business. The business scope includes the Xuchang to Pingdingshan to Nanyang Expressway, the Anyang-Linzhou Expressway, and the Linzhou-Changzhi (provincial border) Expressway, with an operating mileage of 255.36 kilometers. The company's H1 average daily traffic volume was -3.06% to 0.0432 million vehicles, and toll revenue was -8.29% to 0.647 billion yuan year-on-year, mainly due to factors such as reduced traffic volume, extreme weather, and exemption time restrictions.

Risk warning: Waste incineration project operation risks, operational efficiency improvements falling short of expectations, and engineering business development falling short of expectations.