Introduction to this report:

Operating business grew steadily, profitability remained at a high level, and cash flow improved markedly.

Key points of investment:

Maintain an “Overweight” rating. We maintain our 2024-2026 net profit forecast of 1.259, 1.372, and 1.498 billion yuan, respectively, and corresponding EPS of 0.75, 0.82, and 0.89 yuan, respectively.

We reaffirm that in terms of stock project operation, the company's operating level remains industry-leading, and operating performance is growing steadily; in terms of equipment sales, the company has strong waste incineration equipment, active development of international business, and sufficient orders for hand equipment; in terms of shareholder returns, dividends are expected to continue to increase as free cash flow continues to improve. Furthermore, repurchases and cancellations also continue to be carried out, driving the company's value revaluation and maintaining a target price of 11.25 yuan, maintaining a “gain” rating.

The performance was in line with expectations. 1) In the first three quarters of 2024, the company achieved revenue of 4.518 billion yuan, a year-on-year decrease of 0.47%; attributable net profit of 1.01 billion yuan, an increase of 3% year-on-year; after deducting non-attributable net profit of 0.998 billion yuan, an increase of 5% year-on-year. 2) 24Q3 achieved revenue of 1.386 billion yuan in a single quarter, down 11% year on year; attributable net profit of 0.344 billion yuan, down 2% year on year, up 24% month on month; after deducting unattributed net profit of 0.337 billion yuan, down 3% year on year, up 22% month on month. 3) The company's engineering business declined, operating revenue grew steadily, and performance was in line with expectations.

Profitability remained at a high level, and cash flow improved markedly. 1) The 2024Q3 company's comprehensive gross profit margin was 35.85%, an increase of 2.50 pct over the previous year. The increase in operating share led to a continuous increase in comprehensive gross margin. The net profit margin was 23.61%, an increase of 0.91 pct over the previous year, and the expense ratio was well controlled. The balance ratio was 52.08%, down 2.92pct from 2024H1. 2) The net cash flow from 2024Q3 operating activities was 1.575 billion yuan, an increase of 43% over the previous year, mainly due to a decrease in EPC construction projects and a decrease in cash flow expenses for purchasing goods and services. 3) In terms of capital expenditure, the company's capital expenditure in 2024Q3 was 0.437 billion yuan, a year-on-year decrease of 47%. The trend of capital expenditure contraction is clear.

Indirect controlling shareholders have increased their holdings, and repurchases and cancellations continue. 1) As of October 28, Water Environment, the indirect controlling shareholder, had increased its holdings of the company's shares by 7.1264 million through centralized bidding, accounting for about 0.42% of the company's total share capital, with a cumulative increase of 52.33 million yuan. Currently, Water Environment directly holds 8.91% + indirectly holds 43.86% of the company's shares. The increase in holdings shows confidence in the company's development. 2) As of September 30, 2024, the company has repurchased a total of 3.9131 million A shares through centralized bidding transactions, accounting for about 0.233% of the company's total share capital. The highest repurchase price was 8.65 yuan/share, the lowest price was 7.09 yuan/share, and the total transaction amount was approximately RMB 29.99 million. The repurchase and cancellation maintained the company's value and continued to advance.

Risk warning: Project progress falls short of expectations, industry policy changes, etc.