Incidents:

The company issued a special dividend plan announcement. It plans to distribute a cash dividend of 3.5 yuan (tax included) to all shareholders for every 10 shares, for a total of 0.514 billion yuan in cash dividends. The company's net profit for the first three quarters of 2024 was 1.022 billion yuan, and the total amount of this special dividend accounted for about 50.3% of the profit for the first three quarters.

Based on the closing price on December 16, 2024, the dividend rate for this special dividend is 3.86%.

The dividend ratio has increased significantly, and long-term clean companies with high-quality fundamentals have accelerated market value management:

The company's dividend ratio has basically stabilized at around 30% over the past ten years. The special dividend plan for the third quarter raised the dividend ratio to 50.3%, and the emphasis on shareholder returns has increased significantly. Since the beginning of 2024, the State Council's State-owned Assets Administration Commission and the Securities Regulatory Commission have continuously issued documents and conference speeches emphasizing the market value management of listed companies, with particular emphasis on promoting the establishment of a market value management assessment system for central state-owned enterprises. On November 15, 2024, the Securities Regulatory Commission officially issued the “Guidelines for the Supervision of Listed Companies No. 10 - Market Value Management”, which sets out specific market value management requirements for long-term broken companies. Zhongshan Public Utility Company is a long-term broken state-owned enterprise with low PE, and emphasizes market value management. From October 2023 to the end of January 2024, the controlling shareholder increased its cash holdings of the company showing confidence. This special dividend further shows the importance the company attaches to shareholder returns and its determination and measures to strengthen market value management. Valuation repair can be expected.

The company's main business is stable and has the potential for continued high dividends:

The company is a comprehensive environmental protection platform in Zhongshan. Its main business is mainly operating businesses such as environmentally friendly water services and solid waste treatment, and has developed steadily in recent years. In terms of water services, as of the first half of 2024, the company's overall water supply capacity was 2.76 million tons/day, of which the water supply capacity in Zhongshan City was about 2.26 million tons/day, making it the absolute leader in the water supply industry in Zhongshan, with a market share of 80%. The Zhongshan Municipal Government promoted the “Water Supply One Game” process. In December 2023, the company announced plans to integrate 13 water supply enterprises in Zhongshan. Eight of these companies will hand over assets at the end of 2023, with a total transaction price of 0.751 billion yuan. It is expected that as integration continues to advance, the company's water supply capacity in Zhongshan is still expected to increase steadily.

In terms of solid waste, the company acquired Tianyi Energy and Zhuzhou Jinlia Company in 2015 and 2022, respectively, and entered the waste incineration markets in Zhongshan City and Zhuzhou City. As of the first half of 2024, it has a domestic waste treatment capacity of 0.792 million tons/year, and it is not ruled out that it will acquire more offsite projects in the future. The company's overall main business is stable, and there is potential for continued high dividends in the future.

Capital market activity has increased dramatically, and the investment income of GF Securities is expected to improve:

As of the end of the third quarter of 2024, the company held 10.55% of GF Securities, a leading domestic brokerage firm. Investment income was an important source of profit. The company's annual net investment income from 2019-2023 was between 0.7-1.3 billion yuan. Recently, the country's package of policies including “300 billion yuan share repurchase and special reloan”, “500 billion yuan securities, fund, and insurance company exchange facilitation”, “vigorously guiding medium- and long-term capital entry into the market”, and “strengthening market value management” has continued to gain strength. Since the end of September and the beginning of October, market activity has increased dramatically, and the daily turnover and balance of A-share shares have increased significantly. It is expected to drive the growth of brokerage business revenue, and increase profits from the brokerage industry in the fourth quarter. The company's return on investment is expected to improve.

Investment recommendations:

We expect the company's revenue for 2024-2026 to be 5.905 billion yuan, 6.518 billion yuan, and 6.768 billion yuan, respectively, with growth rates of 13.6%, 10.4%, and 3.8%, respectively; net profit of 1.245 billion yuan, 1.576 billion yuan, and 1.77 billion yuan respectively, with growth rates of 28.7%, 26.6%, and 12.3% respectively.

Zhongshan Public Utility was given an investment rating of -A, 14 times PE in 2024, with a target price of 11.76 yuan for 6 months.

Risk warning: risk of a decline in engineering business, falling short of expectations in new energy business development, risk of environmental policy changes, risk of assumptions falling short of expectations, etc.