Xiangyu Dredging (00871 HK) 1H13 revenue increased 4.8% YoY toRMB505 million, net profit decreased 4.6% YoY to RMB107 million, inline with expectation. 1H13 operating margin remained stable at 36.1%,while finance costs substantially increased 2.9x YoY to RMB17 million withincreased debt. As at 30th Jun 2013, the Company had RMB577 million ofborrowings, up 23.6% compared with at 31st Dec 2012; net gearing was26.1%, up 2.7 ppts. 1H13 CRD revenue increased 7.7% YoY to RMB230 million. Operatingmargin dropped 1.9 ppts YoY to 42.6%. 1H13 EPD&WM revenue increased21.5% YoY to RMB175 million. Operating margin increased 1.5 ppts YoY to30.9%. We expect that EPD could emerge as the key growth driver.Although debt is up fast, we expect that operational improvement can dragdown net gearing starting next year. Reduce FY13-15 EPS estimates by 4.8%, 4.9% and 1.6%, respectively, toRMB0.278, RMB0.298 and RMB0.339 with a reduced interest income. Raisethe TP to HK$2.50 based on expected improvement in financial position,new TP represents 7.0x FY13 PER, 6.6x FY14 PER and 0.7x FY12-15PEG. Maintain "Accumulate".