Sanfeng Environment released its 3Q results: the 3Q26 revenue was RMB1,510mn (+15.43/+6.21% YoY/QoQ), with attributable net profit (NP) of RMB411mn (-3.50/+78.61% YoY/QoQ), meeting our expectations (RMB383-469mn). The 9M26 revenue/attributable NP/recurring NP were RMB4,453/1,071/1,068mn (+7.18/-2.98/+0.53% YoY). The company adheres to a dual-wheel market strategy across domestic and international markets. On 6 October, a joint venture formed with China State Construction Engineering (Hong Kong) signed the contract for the Hong Kong I·PARK2 Integrated Waste Management Facilities Phase II project, underscoring its full solid waste value chain strengths. We believe the company possesses high-quality assets, with growth potential across operations and equipment businesses as well as domestic and overseas markets. Maintain BUY.
9M26 recurring NP up YoY; tax rate rises as exemption expires
The company maintained stable project operations, with its 9M26 gross margin rising by 0.6pp YoY to 41.10% and recurring NP increasing by 0.53% YoY to RMB1,068mn. Cost and expense controls were effective, with the 9M26/3Q26 overall expense ratios down by 0.9/2.2pp YoY to 10.68/10.63%. Specifically, the 3Q26 sales/administrative/R&D/financial expense ratios were 0.30/5.44/0.90/ 3.99%, down by 0.11/0.52/0.67/0.92pp YoY. The 9M26 income tax expense reached RMB246mn (+35% YoY), corresponding to an effective tax rate of 17.67% (+3.97pp YoY), primarily due to the expiration of tax exemptions ("three-year exemption and three-year 50% reduction") for certain projects.
Earnings forecasts and valuation
We project 2026/2027/2028 attributable NP at RMB1,275/1,326/1,367mn (-4.0/ -4.0/-4.0% vs. our previous estimates), implying EPS of RMB0.76/0.79/0.82. The adjustment mainly reflects the 4.0pp YoY increase in the 9M26 effective tax rate to 17.67%, leading to higher tax rate forecasts. Considering the company's growth potential across operations and equipment businesses as well as domestic and overseas markets, alongside a downward trend in capital expenditure, improving FCF, and room for higher dividends, we value the stock at 12.4x 2027E PE, above its peers' average of 11.3x on Huatai Research estimates, for our target price of RMB9.80 (previous: RMB12.64, based on 16.0x 2026E PE). Maintain BUY.
Risks: lower acquisition and execution of overseas orders than we expect; reductions or cancellation of electricity tariff subsidies; lower collection of waste treatment fees and power generation revenue than we expect.