XREC(SZ:000598) Soochow Securities·2024-08-31 14:00Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Views - The company achieved a revenue of 4.008 billion yuan in H1 2024, representing a year-on-year increase of 15.18%, and a net profit attributable to shareholders of 928 million yuan, up 9.56% year-on-year. The increase in revenue outpaced the growth in net profit, with a gross profit margin of 43.08% and a net profit margin of 23.84% [3] - The company is expected to benefit from the expansion of its water and waste management capacity in Chengdu, along with a planned increase in sewage treatment fees, which is projected to enhance profitability [3] - The long-term cash flow potential is significant, with a projected increase in free cash flow after a peak in capital expenditures over the next two years [3] Financial Performance Summary - Total revenue for 2022 was 7.63 billion yuan, with a forecasted increase to 8.79 billion yuan in 2024, reflecting a growth rate of 8.72% [2] - Net profit attributable to shareholders was 1.618 billion yuan in 2022, expected to rise to 2.079 billion yuan in 2024, indicating a growth rate of 12.79% [2] - The latest diluted EPS is projected to be 0.70 yuan per share in 2024, with a P/E ratio of 9.62 [2] Business Segment Performance - Water supply segment revenue reached 1.222 billion yuan in H1 2024, up 4.70%, with a gross margin of 45.14% [3] - Sewage treatment revenue increased by 31.17% to 1.704 billion yuan, with a gross margin of 42.26% [3] - Revenue from waste incineration was 377 million yuan, up 14.24%, with a gross margin of 48.49% [3] - Revenue from water supply and drainage pipeline engineering decreased by 15.15% to 239 million yuan [3] Cash Flow and Investment - Operating cash flow for H1 2024 was 977 million yuan, an increase of 11% year-on-year [3] - The net cash flow from investment activities was -2.592 billion yuan, a decrease of 30.61% [3] - Financing cash flow increased by 126.23% to 1.176 billion yuan, primarily due to increased bank borrowings [3] Long-term Growth Potential - The company is positioned to expand its water and waste management capacity in Chengdu, with ongoing projects expected to contribute to revenue growth in the next 1-2 years [3] - The planned increase in sewage treatment fees is expected to enhance profitability, with a projected average price of 2.63 yuan per ton, a 22% increase from 2023 [3] - The company has a dividend payout ratio of 27.53% in 2023, indicating potential for future increases [3]