Incident: The company released its 2024 annual report. In 2024, the company achieved operating income of 3.837 billion yuan, a year-on-year decrease of 7.04%; net profit to mother 0.367 billion yuan, a year-on-year decrease of 6.54%; after deducting non-net profit of 0.366 billion yuan, a year-on-year increase of 6.14%.

Core ideas:

After deducting the increase in non-net profit, the operation service business remained steady, and the engineering business was under pressure. Affected by the decline in revenue from the engineering business, the company achieved annual revenue of 3.837 billion yuan, a year-on-year decrease of 7.04%; net profit attributable to shareholders of listed companies was 0.367 billion yuan, a year-on-year decrease of 6.54%; and net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 0.366 billion yuan, an increase of 6.14% year on year. Among them, operating services achieved revenue of 2.455 billion yuan, an increase of 1.62%; engineering construction services achieved revenue of 1.174 billion yuan, a year-on-year decrease of 24.63%; and equipment manufacturing sales and services achieved revenue of 0.197 billion yuan, an increase of 38.9% over the previous year. The company implemented a sound financial strategy and continued to reduce financing costs. The cost of comprehensive financing was reduced to 3% during the reporting period, effectively promoting the two-year pressure reduction process. In 2024, it successfully reduced accounts receivable for more than two years by about 80 million.

Actively expand new orders and continue to deepen overseas business. In 2024, the company added 46 new energy saving and environmental protection engineering orders, with a contract amount of 1.445 billion yuan, including 27 EPC and 19 EP19, focusing on the Sishui County Ecological New Town Sewage Treatment Plant Project, Anhui Jiangnan Industrial Concentration Zone No. 1 Sewage Treatment Plant (Phase I 2 Series) EPC Project, Jishou Qianzhou District Sewage Treatment Plant and Supporting Sewage Main Pipeline Network Renewable and Renovation Project, Gansu Zhihui Green New Energy Co., Ltd. 10 million tons/year low-grade coal gradation, clean and efficient utilization and integration of new energy sources Demonstration projects, etc.; 0.54 billion yuan was added for operation projects, focusing on projects commissioned by the Xishi Industrial Sewage Treatment Plant and the operation project of the Dongshi District Sewage Treatment Plant in Tianchang City. In addition, the company is actively expanding overseas markets, deepening cooperation with China Overseas Group, winning the bid for the KF sewage treatment plant project in Ethiopia, and further expanding its international business layout.

Shareholders' increased holdings showed confidence, and business collaboration opened up profit margins. In November 2024, the company announced that China Energy Saving, the controlling shareholder of the company, plans to take the opportunity to increase the company's shares at an appropriate price through methods permitted by the Shenzhen Stock Exchange trading system within 6 months from November 27, 2024. Based on the company's latest share capital, the increase ratio is not less than 3.333% and not more than 6.666%. The company actively integrates into China's energy saving market collaborative development system, giving full play to the group company's policy resources, government resources and capital market advantages. It has a comparative advantage in developing market projects based on major national environmental management strategies such as pollution control in the Yangtze River Economic Belt, comprehensive management of the Yellow River Basin, and pollution control around the Chaohu Lake Basin. Based on the original traditional business, the company further focuses on business areas such as industrial wastewater, park management, watershed management and rural water supply and drainage.

Profit forecast: We expect the company to achieve operating income of 4.136/4.458/4.806 billion yuan respectively in 2025-2027, up 7.78%/7.79%/7.80% year-on-year, and net profit to mother of 0.414/0.472/0.541 billion yuan respectively, up 12.92%/14.04%/14.50% year-on-year. According to the closing price on March 18, 2025, the corresponding PE is 12.65/11.09/9.69 times EPS, respectively They were 0.61/0.69/0.79 yuan respectively, giving the company a “recommended” rating.

Risk warning: Market expansion falls short of expectations; increased industry competition; risk of policy shift; risk of impairment of accounts receivable and inventory.