XREC(SZ:000598) Changjiang Securities·2025-03-31 02:20Investment Rating - The report maintains a "Buy" rating for the company [9][11]. Core Viewpoints - The company, Xirong Environment, is a leading water utility and waste incineration company in Chengdu, with a stable growth trajectory. The water industry is expected to grow steadily, with a projected compound annual growth rate (CAGR) of approximately 8.9% for wastewater treatment and 6.0% for tap water from 2023 to 2026. The company is actively expanding into the second and third circles of Chengdu, which could add approximately 1.64 million tons/day in water supply capacity and 1.17 million tons/day in wastewater treatment capacity [2][5][6]. Summary by Sections Company Overview - Xirong Environment is a state-controlled enterprise under the Chengdu State-owned Assets Supervision and Administration Commission, primarily engaged in water utility operations and expanding into waste incineration, leachate treatment, and sludge disposal. As of H1 2023, the company has operational, under-construction, and planned projects with a total capacity of approximately 9 million tons/day for water and wastewater treatment, 14,400 tons/day for waste incineration, and 8,430 tons/day for leachate treatment [5][19][20]. Water Utility Operations - The company's wastewater treatment and tap water revenues have shown a compound annual growth rate of 19.5% and 6.0%, respectively, over the past five years. The population in Chengdu has been growing at a CAGR of 1.38% over the past three years, increasing the demand for domestic water. The company expects a CAGR of approximately 8.9% for wastewater treatment revenue and 6.0% for tap water revenue from 2023 to 2026 [6][31][45]. Waste Incineration - The current operational capacity for waste incineration is 6,900 tons/day, with plans to reach 12,000 tons/day by 2026. The projected revenues from waste incineration for 2023-2026 are estimated at 649 million, 667 million, 678 million, and 896 million yuan, respectively, with a significant increase expected in 2026 [7][9]. Other Waste Management Services - The company is also involved in leachate treatment, sludge disposal, and kitchen waste disposal. The projected revenues from leachate treatment for 2023-2026 are estimated at 231 million, 264 million, 276 million, and 294 million yuan, respectively, with a compound annual growth rate of approximately 15.1% for sludge disposal [14][19][29]. Financial Analysis - The company is expected to achieve a compound annual growth rate of 11.0% in net profit attributable to shareholders from 2023 to 2025, with net profits projected at 1.84 billion, 2.04 billion, and 2.22 billion yuan for those years. The company's price-to-earnings (PE) and price-to-book (PB) ratios are at historical lows, indicating a high margin of safety and significant valuation advantages [9][19][29].