Core Viewpoint - The report from Huayuan Securities indicates that Chuangye Environmental's free cash flow continues to improve, and an increase in dividends is expected [1] Company Overview - After over 20 years of development, the company has become a seasoned player in the water industry, with main businesses including wastewater treatment, reclaimed water supply, and tap water supply [1] - Wastewater treatment and construction are the core profit sources for the company, projected to contribute nearly 80% of revenue and gross profit in 2024 [1] Valuation and Comparison - Comparable companies selected for valuation include Beikong Water Group, Hongcheng Environment, and Chongqing Water, with an average valuation of 17 times for these companies in 2025 [1] - The current valuation level of Chuangye Environmental is significantly lower than the industry average [1] Dividend Expectations - Based on the dividend rate for 2024, the company is expected to have a dividend yield of 3.4% in 2025 [1] - The Hong Kong-listed Tianjin Chuangye Environmental has an even lower current valuation, with a projected dividend yield of 5.9% in 2025, suggesting attention to the Hong Kong platform [1]

Investment Rating - The report assigns a "Buy" rating for the company, indicating a positive outlook based on improving free cash flow and expected dividend increases [5][8]. Core Views - The company is a state-owned water utility in Tianjin, with over 20 years of industry experience, primarily engaged in wastewater treatment, recycled water supply, and tap water supply. The wastewater treatment segment is expected to contribute nearly 80% of revenue and gross profit in 2024 [7][16]. - The company has shown stable profitability with a net profit margin around 17% and a return on equity (ROE) between 8% and 10% from 2019 to 2024. The gross margin has been steadily increasing [19][21]. - Free cash flow turned positive in 2024, with expectations for continued improvement due to reduced capital expenditures and enhanced collection of receivables [10][21]. - The company has a significant potential for dividend increases, with a current dividend payout ratio around 30%, which is lower than industry peers [10][11]. Summary by Sections Market Performance - As of August 1, 2025, the closing price is 5.92 CNY, with a total market capitalization of approximately 9,296.88 million CNY [3]. Financial Forecasts and Valuation - Revenue projections for 2025-2027 are 48.64 billion CNY, 49.04 billion CNY, and 50.35 billion CNY, with year-on-year growth rates of 0.8%, 0.8%, and 2.7% respectively. Net profit estimates are 9.58 billion CNY, 9.95 billion CNY, and 10.27 billion CNY, with growth rates of 18.65%, 3.89%, and 3.19% respectively [6][40]. - The current price-to-earnings (P/E) ratios are projected at 10, 9, and 9 for the years 2025, 2026, and 2027, respectively, which is significantly lower than the industry average P/E of 17 [8][40]. Investment Logic - The company has a strong market position in wastewater treatment, with a stable revenue stream and improving margins. The wastewater treatment price has increased from 1.7 CNY/ton to 1.92 CNY/ton from 2021 to 2024, reflecting a consistent upward trend [10][33]. - The company is expected to benefit from the cessation of goodwill impairment losses starting in 2025, which could positively impact net profit by approximately 1.5 billion CNY [11][38]. Key Assumptions - The report assumes new wastewater treatment capacity additions of 9, 5.5, and 6 thousand tons per day for 2025-2027, with a consistent treatment price of 1.92 CNY/ton [9][41].