XREC(000598) 长江证券·2024-03-03 16:00Investment Rating - The report maintains a "Buy" rating for the company, citing its strong growth potential and low valuation [7] Core Views - The company is a leading player in water services and waste incineration in Chengdu, with stable and growing performance [1][4] - The company has expanded its business from water services to waste incineration, leachate treatment, sludge disposal, and food waste treatment, with significant capacity growth expected in the next three years [4][5] - The company is actively expanding into the second and third-tier markets in Chengdu, which could bring substantial revenue and profit growth [2][5] Business Overview - The company is a state-owned enterprise under the Chengdu State-owned Assets Supervision and Administration Commission, with operations in water supply, sewage treatment, waste incineration, and other environmental services [4][16] - As of H1 2023, the company operates, constructs, and plans water supply and sewage treatment projects with a capacity of approximately 900 million tons/day, waste incineration projects with a capacity of 14,400 tons/day, and sludge disposal projects with a capacity of over 3,400 tons/day [4][16] - The company has set equity incentive targets for 2023/2024, aiming for revenues of 8/9 billion yuan and EPS of 0.59/0.65 yuan/share, demonstrating confidence in its growth [4] Water Services - The company's traditional water services business has shown steady growth, with a 5-year compound annual growth rate (CAGR) of 19.5% for sewage treatment and 6.0% for tap water [5] - Chengdu's population growth and economic development have driven demand for water services, with low risk of payment defaults for sewage treatment fees [5] - The company is expected to achieve a CAGR of 8.9% in sewage treatment revenue and 6.0% in tap water revenue from 2023 to 2026 [5] Waste Incineration - The company currently operates waste incineration facilities with a capacity of 6,900 tons/day, with plans to reach 12,000 tons/day by 2026 [6] - The utilization rate of waste incineration capacity in Chengdu is expected to reach 89.4% by 2026, maintaining a high level of efficiency [6] - Revenue from waste incineration is projected to grow from 649 million yuan in 2023 to 896 million yuan in 2026, with a significant increase in 2026 due to full capacity utilization [6] Other Environmental Services - The company is expanding into leachate treatment, sludge disposal, reclaimed water, and food waste treatment, with significant revenue growth expected in these areas [6] - For example, food waste treatment revenue is projected to grow from 59 million yuan in 2024 to 236 million yuan in 2026, with a CAGR of 138.4% and 68.9% in 2025 and 2026, respectively [6] Financial Performance and Valuation - The company's net profit is expected to grow at a CAGR of 11.0% from 2023 to 2025, reaching 1.84 billion yuan in 2023, 2.04 billion yuan in 2024, and 2.22 billion yuan in 2025 [6] - The company's PE and PB ratios are at historically low levels, indicating a high margin of safety and significant valuation advantages [6] Expansion and Integration - The company is actively integrating water and environmental resources in Chengdu's second and third-tier regions, which could bring additional water supply and sewage treatment capacity of 163.7 million tons/day and 116.7 million tons/day, respectively [5][56] - The company has established joint ventures in regions such as Tianfu New Area and Pidu District to further expand its market share in water and environmental services [56]