Investment Rating - The report maintains a "Positive" investment rating for the environmental sector [11] Core Insights - The environmental sector's net profit attributable to the parent company is expected to decline by 6.6% in 2024 and increase by 3.9% in Q1 2025, with solid performance in waste incineration and water services [2][6] - The sector's revenue for 2024 is projected at 305.7 billion, a slight decrease of 0.44% year-on-year, while the net profit attributable to the parent company is expected to be 20.9 billion, down 11.1% [6][22] - The report highlights the improvement in free cash flow for waste incineration and water services, indicating a potential for higher dividends in the future [8][9] Summary by Sections Profit and Loss Statement - In 2024, the environmental sector is expected to achieve a revenue of 3057 billion, with a net profit of 209 billion, reflecting a decline of 11.1% year-on-year [6][22] - The sector's gross margin is projected to be 27.5%, an increase of 0.46 percentage points compared to the previous year [6][22] Balance Sheet - The environmental sector's debt ratio is expected to stabilize at 57.17%, a decrease of 0.19 percentage points year-on-year [7] - Accounts receivable as a percentage of revenue is projected to increase by 7.0 percentage points to 62.8% in 2024, indicating pressure on local government finances [7] Cash Flow Statement - The cash collection ratio for the environmental sector is expected to be 91.4%, an increase of 1.7 percentage points year-on-year [8] - The free cash flow for the sector is projected to be 2.1 billion, an increase of 10.5 billion year-on-year, with significant improvements in waste incineration and water services [8] Investment Strategy - The report suggests a moderately optimistic outlook for the sector, driven by market reforms and the "14th Five-Year Plan" assessment year, which may enhance cash flow and valuation recovery [9] - Key investment targets include companies in waste incineration and water services, such as Huaneng Environment, Xingrong Environment, and Weiming Environmental [9]

Investment Rating - The industry investment rating is "Positive" and maintained [6] Core Viewpoints - The public utility market reform is progressing, which is beneficial for industry profitability and cash flow improvement. The report highlights a valuation recovery logic and is optimistic about quality targets in the waste incineration, water, and gas sectors [2][9] Summary by Sections Event Description - On April 29, 2025, the Guangzhou Development and Reform Commission announced a water price reform, effective June 1, with the first, second, and third tier prices set at 2.55, 3.82, and 7.65 yuan per cubic meter respectively [4] Event Commentary - The report emphasizes the necessity of price adjustments due to rising operational costs for water supply companies, which have seen losses increase from -447 million yuan in 2020 to -653 million yuan in 2022. The price adjustments reflect a balance between profitability and public affordability, with increases of 28.8%, 28.6%, and 93.2% for the respective tiers [9] - Shenzhen is also moving forward with water price adjustments, indicating a broader trend in public utility reforms [9] Market Trends - The report notes that major cities are implementing or considering water price adjustments, which will enhance the profitability of water companies. The waste incineration sector is also expected to benefit from new revenue models and fee structures, while gas pricing reforms are anticipated to improve margins for city gas companies [9] - The report recommends several companies in the waste incineration, water, and gas sectors, including Hanlan Environment, Weiming Environmental, and China Gas, as quality investment targets [9]