The company specializes in comprehensive ecological environment remediation business, covering a wide range of business. The company was founded in 1999 and listed on the Science and Technology Innovation Board of the Shanghai Stock Exchange on December 25, 2020. From carrying out research on solid waste pollution barrier and remediation technology, the company gradually realized collaborative development in the fields of solid waste pollution control and recycling, comprehensive sewage and water environment treatment, and soil and groundwater remediation. In 2020-2023, the company's revenue growth rate increased year by year, from 8.5 to 1.49 billion yuan, and the CAGR reached 20.4%; net profit to mother fell from 0.09 billion to 0.03 billion, mainly affected by slow disbursement of funds from local government budgets. As debt conversion policies improve the government debt situation, the company's profit level is expected to rise again.

The company has extensive experience in treating solid waste pollution and water pollution, and there is still room for growth. 1) Domestic waste landfill management is growing steadily, and orders from outside the province are being actively developed. In 2022, the market size of China's landfill treatment industry was about 7.948 billion yuan, an increase of 4.9% over the previous year. The company's garbage disposal market share in 2023 was among the highest in the industry. The company actively explores markets outside the province, focusing on East China, Guangdong, Fujian and Southwest China. Currently, the company won more than 0.4 billion yuan in 2024 for a new landfill environmental remediation order.

2) Strong ability to obtain comprehensive treatment of sewage and water environment, and the investment market in Anhui Province is broad. According to the “14th Five-Year Plan” Development Plan for Urban Sewage Treatment and Resource Utilization in Anhui Province, the planned investment for urban sewage treatment and resource utilization facilities in Anhui Province during the “14th Five-Year Plan” period was about 23 billion yuan. The company is currently based in the Anhui market and has formed a strong competitive advantage. Its business covers Hefei, Huainan, Lu'an and other regions. According to incomplete statistics, there are currently about 0.48 billion yuan of new orders for comprehensive sewage and water environment treatment in 2024, with sufficient orders in hand to support performance growth.

We hope to improve financial performance and enter new businesses to expand the second growth curve. 1) The size of accounts receivable for 2021-2023 increased year by year, to 0.59/0.71/0.99 billion yuan respectively, accounting for 30.1%/30.5%/35.7% of total assets. Asset impairment losses and credit impairment losses also gradually increased in the same year, reaching a total of 0.03/0.04/0.06 billion yuan. As debt conversion intensifies, the company's balance, liability and profit situation is expected to improve significantly. 2) The company relied on Tongyuan New Energy's subsidiary to enter the new energy business field. In 2023, the company and consortium members jointly undertook distributed photovoltaic power generation projects with a bid amount exceeding 0.3 billion yuan to expand the photovoltaic business sector. The company also participated in investing in amidinol through capital increases to explore the field of new materials. 3) The company released an equity incentive plan in early 2024 to deeply bind the interests of the company and employees and promote the company's further development.

Investment advice. We expect the company to achieve revenue of 1.58, 1.75 and 1.94 billion yuan in 2024-2026, net profit of 0.02/0.06/0.08 billion yuan, corresponding EPS of 0.13/0.48/0.62 yuan/share, corresponding to PE90.5/24.8/19.3x. The company is a leading enterprise in comprehensive ecological environment remediation, and there is still room for growth in its main business. We are optimistic that the company will benefit from improved financial statements and the acceleration of new business growth after debt conversion. It was covered for the first time, and gave it a “buy” rating.

Risk warning: risk of performance fluctuations, accounts receivable risk, project management risk.