Capital Eco-Pro’s 1H24 revenue/attributable net profit (NP)/recurring NP were RMB9,134/916/832mn (+3.35/20.99/11.99% yoy), with 2Q24 revenue/attributable NP at RMB4,781/554mn (+6.35/27.76% yoy, +9.83/53.37% qoq). Accounts receivable were RMB13.95bn at end-1H24 (end-2023: RMB12.04bn). We estimate 2024/2025/2026 EPS at RMB0.36/0.29/0.31. Given the company’s pronounced leading advantages, proactive water-price adjustments, and strong growth potential, we value the stock at 12.6x 2025E PE, above its peers' average of 10.5x on Wind consensus. Our target price is RMB3.65 (previous: RMB3.44). Maintain BUY.

Leading eco-pro water affairs company, initiate at BUY
A leading eco-pro water affairs company in China, Capital Eco-Pro is committed to offering comprehensive water, solid waste, gas and energy solutions. We project its 2024/2025/2026 attributable net profit (NP) at RMB2.64/2.10/2.29bn, with EPS of RMB0.36/0.29/0.31. Acquisition of Beijing Capital Air mainly engaged in asset-light business has improved the company’s ROE. Its dividend payout ratio of 45.7% in 2023 was higher than peers’ average of 41.9% (Wind), and dividend yield of 4.6/ 3.7% in 2022/2023 than major peers’ averages of 4.1/3.6% (Wind). With improving FCF and cash reserves, we expect its dividend payout ratio to pick up further. We thus value the stock at 11.8x 2025E PE (peers’ average: 11.5x on Wind consensus). Our target market cap is RMB24.9bn, implying our target price of RMB3.44. BUY.
Balanced business model & high dividends to lift its valuation in LT
While optimizing investment strategies for asset-heavy business, it is developing asset-light model to stand out. From 2022 to 2023, share of revenue/attributable NP from services & technology products (main source of asset-light business) in total rose from 11.0/5.3% to 15.2/11% (+4.2/+5.7pp yoy). In 2023, new contracts of its asset-light business made up 71.3% of total (+10.5pp yoy). The company’s capex fell from RMB12.42bn in 2020 to RMB4.47bn in 2023, with FCF improving from RMB-7.96bn to RMB-1.04bn. Its dividend payout ratio rallied to 45.7% in 2023, vs peers’ average of 41.9% (Wind). We believe continued high dividends demonstrate its emphasis on shareholder returns, boding well for valuation upside.
Profit upside of 4.4/8.3% based on price increase estimates
In 2023, sewage treatment/water supply contributed 36.6/19.9% of revenue and 42.3/24.1% of gross profit. Its tap water sales-to-output ratio was 89.6% in 2023, higher than the average of 83.7% of major water peers. Assuming 22% of its water supply and sewage treatment franchise projects can successfully raise water prices, based on 2023 data, we estimate 1) a 15% rise (RMB0.29/tonne) in water supply price to RMB2.21/tonne, or 2) a 15% uptick (RMB0.26/tonne) in sewage treatment service fee to RMB2.01/tonne, could boost its revenue/attributable NP by RMB90/70mn (+0.4/4.4% yoy), or RMB170/133mn (+0.8/8.3% yoy), respectively.
Focus on WTE, 2018-2023 on-grid power volume CAGR at 49.4%
With Capital Environment as its major solid waste disposal platform, to optimize asset allocation, the company sold its New Zealand project in September 2022 and Singapore subsidiary in July 2024. In 2023, share of WTE revenue in its solid waste disposal business rose to 56%. By end-2023, it had 68 projects in pipeline (WTE/biomass power: 29/2). Combined WTE & biomass power generation/on-grid power volume grew from 250/205mn kWh in 2017 to 2.68/2.28bn in 2023, with a 2018-2023 CAGR of 48.5/49.4%; average on-grid ratio rose from 82.2% to 85.1%.
Risks: slow price increase progress; disappointing A/R collection; fierce competition.

　　H1营收净利双增，维持“买入”评级
　　首创环保发布半年报，2024年H1实现营收91.34亿元（yoy+3.35%），归母净利9.16亿元（yoy+20.99%），扣非净利8.32亿元（yoy+11.99%）。其中Q2实现营收47.81亿元（yoy+6.35%，qoq+9.83%），归母净利5.54亿元（yoy+27.76%，qoq+53.37%）。1H24公司应收账款账面余额139.5亿（2023年末：120.4亿元）。我们预计公司2024-2026年EPS分别为0.36、0.29、0.31元。可比公司25年Wind一致预期PE均值为10.5倍，考虑公司龙头优势明显，积极推进上调水价，业绩成长性较高，给予公司25年12.6倍PE，目标价3.65元（前值3.44元），维持“买入”评级。
　　污水运营收入同比+8.50%，8个项目水价调增
　　1H24城镇和农村污水运营业务营收29.47亿元，同比+8.50%，毛利12.07亿元，同比+9.98%，新增处理规模14.1万吨/日；水环境综合治理运营业务营收1.65亿元，同比增长15.66%，毛利1.32亿元，同比增长7.52%，水环境综合治理业务在手项目29个，其中11个已投运。1H24公司城镇和农村污水运营业务结算水量15.25亿吨，同比+4.36pp，综合水价1.69元/吨（含税），同比+5.28pp，8个污水项目水价调增，涉及处理规模81.20万吨/日。
　　供水运营收入同比+2.91%，3个项目水价调增
　　1H24供水运营业务营收20.79亿元，同比+2.91%，完成转商运项目5个，涉及处理规模47.10万吨/日，1H24城镇供水业务产能利用率63.99%，同增1.24pp。上半年售水量7.3亿吨，同比+6.80pp，综合水价1.92元/吨（含税），同比+0.66pp；城镇供水运营业务3个供水项目调价，涉及供水规模108.7万吨/日。
　　垃圾焚烧/工业废气运营收入同比+6.45/544.78%
　　1H24垃圾焚烧发电营收10.72亿元，同比+6.45%，毛利5.17亿元，同比+8.69%，上网电量12.87亿千瓦时，生活垃圾处理量合计504.16万吨，焚烧产能利用率87%。工业废气运营业务实现营业收入1.83亿元，同比增长544.78%，毛利3,327万元，同比增长35.09%，主要由于乐亭气一期项目正式投运调整结算价格所致。
　　风险提示：调价进程不及预期，应收账款回款低于预期，产能扩张不及预期，市场竞争加剧。

　　稳中有进的水务环保龙头，首次覆盖给予“买入”评级
　　首创环保是全国水务环保龙头，致力于提供“水、固、气、能”综合解决方案。我们预计2024-2026年归母净利26.4/21.0/22.9亿元，对应EPS0.36/0.29/0.31元。Wind一致预期下，可比公司2025年PE均值为11.5x，考虑首创环保收购以轻资产业务为主的首创大气改善ROE表现，23年分红比例恢复至45.7%，高于可比公司均值41.9%，22-23年股息率4.6/3.7%，高于主要水务公司均值4.1/3.6%，伴随自由现金流改善及现金储备增强，预计公司未来分红能力将进一步提升，给予公司2025年PE11.8x，对应目标总市值249亿元，目标价3.44元，首次覆盖给予“买入”评级。
　　深化轻重并举发展战略，高分红凸显长期投资价值
　　公司在优化重资产业务投资策略同时不断推动轻资产业务破局，2022-2023年，构成轻资产业务主要来源的服务与技术产品营收/归母净利润占比由11.0/5.3%提升至15.2/11.0%，同比+4.2/+5.7pp。2023年公司轻资产业务新增合同额占比高达71.3%，同比+10.5pp，2020-2023年，公司资本支出由124.2亿元下降至44.7亿元，自由现金流由-79.6亿元改善至-10.4亿元。2023年公司分红比例恢复至45.7%，高于主要水务公司均值，预计未来分红能力将继续提升，持续高分红体现公司重视股东回报，有望提升估值中枢。
　　供水/污水22%项目涨价15%假设下，利润弹性4.4/8.3%
　　2023年污水处理和供水业务分别为公司贡献36.6/19.9%的营业收入及42.3/24.1%的毛利润。2023年公司自来水产销率达到89.6%，高于行业内主要水务公司均值83.7%。我们测算，假设公司有22%的供水及污水处理特许经营项目能成功上调水价，以2023年为基准，供水价格上调15%（0.29元/吨）至2.21元/吨将带来营收/归母净利润增量0.90/0.70亿元，增幅0.4/4.4%；污水处理服务费上调15%（0.26元/吨）至2.01元/吨将带来营收/归母净利润增量1.70/1.33亿元，增幅0.8/8.3%。
　　聚焦境内垃圾焚烧发电，18-23年上网电量CAGR达+49.4%
　　公司以首创环境作为开拓固废处置业务的主要平台，近年来为聚焦境内环保业态并优化资产配置，公司于2022年9月出售下属新西兰项目，2024年7月出售新加坡ECO公司，2023年固废处置业务中垃圾焚烧发电营收占比已大幅提升至56%。截至2023年底，首创环境在国内共储备了68个项目，其中包括29/2个垃圾发电/生物质发电项目。2017-2023年，公司发电量/上网电量由2.50/2.05亿千瓦时大幅增加至26.8/22.8亿千瓦时，2018-2023年CAGR达+48.5/+49.4%，平均上网比例由82.2%提升至85.1%。
　　风险提示：调价进程不及预期，应收账款回款低于预期，市场竞争加剧。