XREC(SZ:000598) Changjiang Securities·2025-09-02 10:11Investment Rating - The investment rating for the company is "Buy" and is maintained [8]. Core Views - The company achieved a net profit attributable to shareholders of 975 million yuan in H1 2025, representing a year-on-year increase of 5.03%. In Q2 2025, the net profit was 467 million yuan, a decrease of 0.94% year-on-year. The stable performance of the water supply and sewage treatment businesses was offset by a decline in engineering business revenue [2][6]. - The company expects profit growth in 2025 due to sewage price adjustments and the commissioning of ongoing projects. The dividend payout ratio has room for improvement [2][11]. Summary by Sections Financial Performance - In H1 2025, the company reported total revenue of 4.192 billion yuan, a year-on-year increase of 4.59%. The net profit attributable to shareholders was 975 million yuan, up 5.03% year-on-year. The net profit excluding non-recurring gains and losses was 956 million yuan, an increase of 4.93% year-on-year. In Q2 2025, revenue was 2.169 billion yuan, a slight increase of 0.31%, while net profit decreased by 0.94% year-on-year [2][6]. Business Segmentation - Revenue from the water supply, sewage treatment, and solid waste businesses in H1 2025 was 1.268 billion yuan, 1.871 billion yuan, and 716 million yuan, accounting for 30.25%, 44.64%, and 17.1% of total revenue, respectively. The year-on-year growth rates were +3.79%, +9.82%, and +0.67%. The decline in engineering business revenue was significant, with a 26.13% drop to 177 million yuan [11]. Profitability and Cash Flow - The gross profit margins for water supply, sewage treatment, and waste-to-energy businesses were 51.35%, 43.13%, and 46.16%, with year-on-year changes of +6.21 percentage points, +0.86 percentage points, and -2.34 percentage points, respectively. The company faced credit impairment losses of 106 million yuan, an increase of 10.1 million yuan year-on-year, and an income tax rate of 18.14%, up 2.6 percentage points year-on-year [11]. - The cash collection ratio was 90.02%, down 1.90 percentage points year-on-year. The net cash flow from operating activities was 934 million yuan, a decrease of 4.39% year-on-year. Capital expenditures decreased to 2.11 billion yuan from 2.55 billion yuan in the previous year, which is expected to improve free cash flow [11]. Future Outlook - The company anticipates profit growth in 2025 driven by sewage price increases and the commissioning of ongoing projects. The current operational and under-construction water supply projects have a capacity of approximately 4.3 million tons per day, while sewage treatment projects exceed 4.8 million tons per day [11]. - The dividend payout ratio was 28.0% in 2024, and there is potential for an increase as free cash flow is expected to turn positive with the commissioning of ongoing projects [11]. - The company is projected to achieve net profits attributable to shareholders of 2.11 billion yuan, 2.22 billion yuan, and 2.32 billion yuan for 2025, 2026, and 2027, respectively, with corresponding year-on-year growth rates of +5.8%, +5.1%, and +4.7% [11].