The scale of revenue grew rapidly, and the net profit of the mother of 2023Q1 recovered. In August 2021, the company proposed a goal of doubling the revenue scale within three years. In 2022, the company's revenue was 3.619 billion yuan, an increase of 52.67%; the net profit of the mother was 1,072 million yuan, a decrease of 26.85%. In Q1 2023, the company's operating income/net profit to the mother reached 875/289 million yuan, a sharp increase of 58.09%/50.29% over the previous year.

The company plans to build a three-tier growth curve for municipal environmental protection, industrial environmental protection, and new energy, adhere to the two-wheel drive of capital and technology, and strive to become a leading enterprise in the industry within eight years.

Water services are progressing steadily, waiting for a reasonable increase in water prices in Zhongshan. The company designed a daily water supply capacity of 2.36 million tons and a sewage treatment capacity of 1.38 million tons per day. The company's water sector revenue has been rising steadily in recent years, reaching 1,077 million yuan in 2022. In terms of water supply, water prices in Zhongshan have not been adjusted in the past 10 years, and are already seriously lagging behind neighboring cities. We estimate that when the basic water price in Zhongshan rises to 1.95 yuan/ton in the second half of 2024, the company will increase revenue by 0.84/172 million yuan respectively in 2024/2025. In terms of sewage treatment, attention is being paid to the increase in sewage treatment prices brought about by upgrading standards. In terms of water engineering, attention is paid to the increase in sewage network installation business.

Waste incineration adds production capacity, and restarting CCER can increase revenue. The company's domestic waste disposal capacity reached 3,870 tons/day. In December 2022, the company acquired Zhuzhou Jinlia, and sector performance is expected to improve significantly in 2023. Waste incineration is participating in CCER, which is expected to increase waste incineration revenue after approval and restart: we estimate that when the CCER price is 64.95 yuan/ton and the company's waste incineration power generation capacity is 600 million kilowatt-hours, CCER can increase the company's revenue by 1.49 million yuan.

Entering the distributed photovoltaic business has benefited from the consumption capacity and policies of the Greater Bay Area. The company laid out the new energy sector according to the policy of “investment promotion, investment promotion” and participated in the establishment of new energy industry investment funds and new energy-related pre-REITs funds. In addition, the company cooperated with Yijing Optoelectronics to establish a photovoltaic joint venture to gain experience in the new energy business through rooftop photovoltaic cooperation projects. The company is located in the Greater Bay Area and can benefit from the region's strong electricity consumption capacity and policy support.

Profit Forecast: Maintain the company's “buy” rating. We expect that in 2023-2025, the company will achieve operating income of 4,318/49.42/5.493 billion yuan respectively, net profit of 1,572/18.91/21.187 billion yuan respectively, and the corresponding PE will be 7.25x/6.03x/5.21x respectively.

Risk warning: the rise in water prices fell short of expectations; the CCER approval restart schedule fell short of expectations; business expansion fell short of expectations; the growth rate of new energy scale fell short of expectations; environmental policy changes exceeded expectations; changes in investment income exceeded expectations; profit forecasting and valuation models fell short of expectations