Core Viewpoint - North Control Water Group reported a decline in revenue and net profit for the first half of 2025, while maintaining a slight increase in dividend per share compared to the previous year [1][2]. Revenue Breakdown - Total revenue for H1 2025 was 10.46 billion, a decrease of 7.5% year-on-year, with net profit attributable to shareholders at 0.897 billion, down 20.0% [1]. - Revenue from operational services, including water treatment and urban resource services, accounted for 86.1% of total revenue, reflecting a 10.8 percentage point increase year-on-year [1]. Water Treatment Services - Revenue from wastewater and reclaimed water business reached 4.52 billion, up 3.0% year-on-year, with a domestic gross margin of 60%, an increase of 1 percentage point [2]. - Water supply services generated revenue of 1.45 billion, a slight increase of 0.4% year-on-year, but the domestic gross margin decreased to 41%, down 2 percentage points due to changes in customer structure [2]. Construction Services - Revenue from construction services fell to 0.712 billion, a significant decline of 56.6% year-on-year, attributed to the company's shift to a light asset strategy and completion of existing projects [2]. Technical Services and Equipment Sales - Revenue from technical services and equipment sales was 0.742 billion, down 35.5% year-on-year, but gross margin improved to 34%, an increase of 4 percentage points [2]. Urban Resource Services - Urban resource services generated 3.04 billion in revenue, a year-on-year increase of 13.1%, although gross margin decreased to 20%, down 1 percentage point due to intensified competition in hazardous waste markets [2]. Financial Performance - The company recognized an asset impairment loss of 0.259 billion in H1 2025, impacting overall performance but not cash flow [2]. - Financial expenses decreased by 0.37 billion due to debt structure optimization [2]. Capital Expenditure and Cash Flow - Capital expenditure for H1 2025 was 0.943 billion, a significant decrease of 40.0% from 1.57 billion in the same period last year [3]. - Free cash flow has turned positive since 2022, with expectations for continued improvement as capital expenditures decline [3]. Profit Forecast and Valuation - Projected net profit attributable to shareholders for 2025-2027 is 1.66 billion, 1.70 billion, and 1.71 billion respectively, with expected dividends showing a growth of 3%-5% [3]. - The estimated dividend yield for the stock price as of August 28, 2025, is between 6.4%-6.6%, leading to a "buy" rating [3].

Investment Rating - The report maintains a "Strong Buy" rating for the company, with a target price of 6.4 CNY, representing a 24% upside from the current price of 5.14 CNY [4]. Core Insights - The company is expected to achieve a revenue growth of 9% in 2024, with a resilient core highway business [2]. - The total revenue for 2024 is projected at 5,985 million CNY, a decrease of 20.1% year-on-year, while the net profit attributable to shareholders is expected to be 1,279 million CNY, an increase of 8.7% year-on-year [8]. - The report highlights the company's ability to optimize costs and financial expenses, with a gross margin of 39.3%, up 7.3 percentage points year-on-year [8]. Financial Performance Summary - **Revenue and Profit Forecasts**: - 2024A: Total revenue of 5,985 million CNY, net profit of 1,279 million CNY, and EPS of 0.55 CNY [3][8]. - 2025E: Total revenue of 6,356 million CNY, net profit of 1,354 million CNY, and EPS of 0.58 CNY [3][8]. - 2026E: Total revenue of 6,728 million CNY, net profit of 1,435 million CNY, and EPS of 0.61 CNY [3][8]. - 2027E: Total revenue of 7,036 million CNY, net profit of 1,529 million CNY, and EPS of 0.65 CNY [3][8]. - **Cost Management**: - The company has successfully reduced financial expenses by over 80 million CNY, a decrease of 20.75% year-on-year, contributing to improved profitability [8]. - **Dividends**: - The company plans to distribute a cash dividend of 0.17 CNY per share, with a payout ratio of 31.04% [8]. Business Segment Performance - **Toll Revenue**: - The toll service revenue is expected to grow to 35.80 billion CNY, a year-on-year increase of 2.11%, driven by steady traffic growth [8]. - **Other Segments**: - The smart transportation business revenue decreased by 44.99% due to intensified competition, while fuel sales revenue fell by 9.84% due to a decline in diesel sales [8]. Investment Thesis - The report emphasizes that the company has clear optimization potential and that its asset value is underestimated. The remaining toll collection years for key highways are long, and ongoing expansion projects are expected to unlock new growth potential [8].