Key points of investment:

Incident: The company released its 2024 mid-year report. 24H1's revenue was 1.661 billion yuan, yoy -22.46%; net profit to mother was 0.303 billion yuan, yoy -16.76%; basic earnings per share were 0.22 yuan, a year-on-year decrease of 15.38%, and the performance was in line with expectations.

Operating revenue accounts for 99%, and the company converted to pure operating assets. According to the announcement, the company's waste incineration production capacity reached 0.0402 million tons/day. Affected by the full commissioning of this year's project, the company's current construction revenue dropped sharply to 0.023 billion yuan. The company's operating revenue continued to rise, adding up to 99% of financial revenue.

The main operating indicators continued to improve. 24H1 capacity utilization rate reached 95%, and tons of waste-to-energy generation reached 296 kilowatts. According to the announcement, 24H1 treated 7.0073 million tons of household waste, yoy +11.27%; feed-in electricity capacity 2.072 billion degrees, yoy +12.90%; gas supply 0.239 million tons, yoy +22.51%; achieved operating revenue of 1.44 billion yuan, yoy +10.66%.

The company's free cash flow increased dramatically, from -0.122 billion in 23H1 to +0.327 billion yuan in 24H1. According to the announcement, 24H1's net operating cash flow increased by 0.543 billion yuan, yoy +89%, and Capex dropped from 0.41 billion yuan to 0.217 billion yuan. Overall, the company's free cash flow increased from -0.122 billion yuan in 23H1 to +0.327 billion yuan in 24H1 due to factors such as increased repayment of national reimbursement and processing fees and reduction in new construction projects.

The company plans to pay 46% of the mid-term dividend and release the dividend plan at the same time. The 2026 dividend rate will not be less than 50%. In 2023, the company's dividend rate is 33%. 24 China reports that the company plans to pay 0.1 yuan per share in the medium term, with a total distribution of 0.139 billion yuan, with an interim dividend rate of 46%.

At the same time, the company issued the “Shareholder Dividend Return Plan for the Next Three Years (2024-2026)”, making it clear that the company's dividend rate for the next three years will not be less than 40%, 45%, and 50%.

Investment analysis opinion: We maintain the company's 2024-26 net profit forecast of 0.697/0.762/0.831 billion yuan, corresponding EPS of 0.50/0.55/0.60, and corresponding PE of 11/10/9 times. We continue to be optimistic that the company's profits will grow steadily, free cash flow will improve dramatically, dividends will increase, and maintain a “buy” rating.

Risk warning: Continued increase in accounts receivable and recovery risk; risk of national compensation maturity; risk of the company's capacity utilization rate falling short of expectations; risk of EPS dilution due to debt-for-equity swaps.