Investment Rating - The report maintains an "Overweight" rating for the environmental protection industry [1]. Core Views - Indonesia has launched a $5.6 billion waste-to-energy project, indicating a vast market opportunity for solid waste management companies to expand internationally [11][12]. - The solid waste sector is experiencing strong fundamentals, with a notable increase in free cash flow and improved return on equity (ROE) due to operational efficiencies and reduced capital expenditures [14][15]. - The water services sector is poised for growth, with expectations of increased cash flow and dividend payouts as capital expenditures decline [18][19]. Summary by Sections Industry News - Indonesia's sovereign fund has initiated the first waste-to-energy project tender, with plans for 33 plants and a total investment of approximately 56 billion USD [11]. - The solid waste industry is transitioning to a mature phase, focusing on efficiency improvements and cash flow generation [14]. - The environmental sanitation vehicle market saw a 63.18% increase in new energy vehicle sales, with a penetration rate of 17.40% [20]. Key Recommendations - Recommended stocks include: - **Waiming Environmental**: Selected as a supplier for Indonesia's waste-to-energy projects, with significant operational capacity [13]. - **Green Power**: Strong performance driven by increased heating capacity and cost savings [14]. - **Yongxing Co.**: Notable growth in revenue and profit due to improved operational efficiency [14]. - Companies to watch include **Dayu Water Saving**, **Lian Tai Environmental**, and **Wang Neng Environment** [1]. Financial Performance - The solid waste sector reported a 12% increase in net profit and a 2.7 percentage point rise in gross margin for the first three quarters of 2025 [14]. - Free cash flow for the sector reached 13.3 billion CNY, marking a 28% increase year-on-year [14]. - Dividend payouts are expected to rise, with several companies maintaining high payout ratios [15][18]. Market Trends - The water services sector is expected to see a cash flow turnaround, similar to the solid waste sector, with anticipated increases in dividend payouts as capital expenditures decrease [18][19]. - Price reforms in water services are expected to enhance growth and valuation, with cities like Guangzhou and Shenzhen implementing price increases [18]. Equipment and Technology - The report highlights the growth in the environmental sanitation vehicle market, particularly in new energy vehicles, which are becoming increasingly prevalent [20]. - The report also notes improvements in the profitability of lithium battery recycling, with a slight decrease in metal prices leading to better margins [34][35].

Core Viewpoint - The company demonstrated steady performance growth with significant cash flow, achieving a revenue of 5.568 billion yuan and a net profit of 779 million yuan in the first three quarters of 2025, reflecting a year-on-year growth of 7.21% and 7.10% respectively [2][3] Financial Performance - In Q3 alone, the company reported a revenue of 2.049 billion yuan, marking a year-on-year increase of 7.30%, and a net profit of 322 million yuan, up by 3.16% [2] - The net cash flow from operating activities reached 1.597 billion yuan, showing a substantial year-on-year growth of 26.55%, supporting the company's high dividend strategy [2] Market Dynamics - The upcoming water price reform is expected to enhance the company's profitability, as the supply pricing mechanism will shift towards a more market-oriented approach, ensuring reasonable returns for enterprises [2] - The company's current water supply business has a low profitability, with a gross margin of 14.41% in the first half of 2025, down by 1.53 percentage points year-on-year, indicating ample room for price increases [2] Strategic Development - The company is actively pursuing asset integration and external acquisitions to strengthen its regional leadership, including the acquisition of 100% equity in Chongqing Yujing Water Co., Ltd. for 354 million yuan [3] - The management of various water supply companies under the major shareholder indicates a significant step towards future asset injections, which could enhance the company's performance and open new growth avenues [3] Earnings Forecast - The company is projected to achieve revenues of 7.351 billion yuan, 7.740 billion yuan, and 8.166 billion yuan from 2025 to 2027, with year-on-year growth rates of 5.02%, 5.29%, and 5.51% respectively [3] - The net profit forecasts for the same period are 883 million yuan, 891 million yuan, and 935 million yuan, with growth rates of 12.51%, 0.85%, and 4.92% respectively [3] - Based on the closing price on October 30, 2025, the corresponding PE ratios are projected to be 25.92, 25.70, and 24.50, with EPS estimates of 0.18, 0.19, and 0.19 yuan [3]

Summary of Water Industry Conference Call Industry Overview - The water industry has a stable fundamental outlook, with low correlation to economic cycles, high residential water usage, and low raw material cost proportion, leading to relatively stable profitability and defensive characteristics [2][4][6] - The pricing model in the water industry includes water supply fees and sewage treatment fees, with water supply fees primarily paid by residents, resulting in good cash flow [2][5] Key Points on Pricing and Profitability - Water price reforms are expected to enhance earnings per share (EPS) for water supply companies and improve cash flow for sewage treatment companies by increasing the proportion of resident payments [2][7] - The latest urban water supply and drainage pricing management measures are similar to the Return on Invested Capital (ROIC) concept, with equity capital return rates based on 10-year government bond rates plus a margin, and debt capital return rates based on the Loan Prime Rate (LPR) [2][8] - In 2025, several policies are anticipated to drive water price changes, with major cities like Shanghai and Guangzhou already implementing new pricing adjustments, resulting in an average increase of 0.4 CNY per ton, or an average increase of 21.3% [2][10] Impact of Price Adjustments - Adjustments in water prices are expected to significantly increase net profits after tax deductions for listed companies, with many high-quality companies seeing net profit elasticity between 10% and 21% [2][13] - The water industry’s payment model includes a significant government contribution to sewage treatment fees, with government payments around 60% in cities like Chongqing and Chengdu, while the resident payment proportion is about 40% [5][6] Dividend Potential and Valuation - Water companies have high dividend potential, with many companies having cash flow ratios of 150% to 200%, allowing for a dividend payout ratio of 70% to 80% while maintaining sufficient cash flow for development [3][14] - Notable companies in the Hong Kong market include Beikong Water Group and Yuehai Investment, both of which have stable dividend policies [3][15] Market Dynamics and Investment Logic - The investment logic in the water industry is based on its stable operating fundamentals and marginal catalysts, with core stocks still at low valuation levels despite overall market gains [4][16] - The current market environment suggests that even with high risk appetite, investments in garbage incineration and quality water assets remain valuable due to low valuations and potential for EPS growth, dividend yield, and valuation recovery [16] Conclusion - The water industry is positioned for growth through regulatory reforms and pricing adjustments, with strong cash flow and dividend potential making it an attractive investment opportunity in the current market landscape [2][3][16]

Core Viewpoint - The water industry is experiencing a value reassessment opportunity driven by the deepening of water price marketization reforms, stable asset cash flows, and innovative financing methods such as RWA [1][2][3] Group 1: Industry Insights - The investment logic in the water sector is shifting from traditional defensive attributes to a main line of "water price reform - cash flow enhancement - financing channel expansion - asset value reassessment" [1] - The stable demand for water in China provides a predictable and continuous revenue source, establishing a solid foundation for cash flow stability in the water industry [2] - The natural monopoly characteristics of water companies, combined with government-regulated pricing, result in lower accounts receivable ratios and bad debt rates compared to other industries [2] Group 2: Financial Performance - Water companies exhibit strong return certainty and high cash dividend characteristics, with firms like Chongqing Water and Xingrong Environment consistently allocating a high proportion of net profits to cash dividends, resulting in dividend yields significantly above market averages [3] - The introduction of the first RWA registration platform is expected to open new financing channels for water assets, which are characterized by regional monopolies and stable cash flows [3] - The integration of RWA with water assets can significantly lower debt ratios and financing costs while enhancing capital turnover rates, thereby unlocking value reassessment potential [3]

Investment Rating - Maintain "Buy" rating for the environmental protection industry [1] Core Insights - The acceleration of unmanned sanitation bidding indicates rapid industry development and technological iteration [8] - Decrease in capital expenditure in waste incineration leads to increased dividends, while improvements in heating and IDC enhance ROE and valuation [9] - Water utility operations show steady growth and high dividends, with water price reforms reshaping growth and valuation [12] Summary by Sections Industry Trends - Unmanned sanitation bidding is accelerating, with a procurement project for 100 small autonomous cleaning vehicles announced, budgeted at 28.6 million yuan [8] - The waste incineration sector is seeing a decline in capital expenditure, leading to improved free cash flow and increased dividends [9] - The water utility sector is experiencing stable growth, with a projected revenue of 655 billion yuan in 2024, and a net profit of 112 billion yuan, reflecting a 27% increase [12] Key Recommendations - Recommended companies include: Huanlan Environment, Green Power, Yongxing Co., and others for their strong dividend performance and growth potential [4] - Focus on companies like Yuehai Investment and Xingrong Environment for their robust cash flow and dividend commitments [12] Equipment and Technology - The penetration rate of new energy sanitation vehicles increased by 6.14 percentage points to 14.55% in the first four months of 2025, with sales of 3,570 units, a 73% year-on-year increase [21][22] - The market for bio-diesel remains challenging, with prices stable and profits under pressure due to rising raw material costs [36] Financial Performance - Companies like Junxin Co. and Green Power are expected to increase their cash dividends significantly in 2024, with Junxin's cash dividend projected at 507 million yuan, a 37% increase [9] - The water utility sector is set to benefit from recent price reforms, with Guangzhou implementing significant price increases for residential water [13][14]

Investment Rating - Maintain "Buy" rating for the environmental protection industry [1] Core Insights - The acceleration of unmanned sanitation bidding indicates rapid industry development and technological iteration [8] - Decrease in capital expenditure in waste incineration leads to improved dividends, while heating and IDC collaborations enhance ROE and valuation [9] - Water utility operations show steady growth and high dividends, with water price reforms reshaping growth and valuation [12] Summary by Sections Industry Trends - Unmanned sanitation bidding is accelerating, with significant projects announced, such as the procurement of 100 autonomous cleaning vehicles with a budget of 28.6 million yuan [8] - The waste incineration sector is experiencing a decline in capital expenditure, leading to improved free cash flow and increased dividends. For instance, Junxin Co. plans to distribute 507 million yuan in cash dividends in 2024, a 37% increase year-on-year [9] - Water utility sector performance remains robust, with a projected revenue of 655 billion yuan in 2024, despite a 2% decline, and a 27% increase in net profit [12] Key Recommendations - Recommended stocks include Hanlan Environment, Green Power, Yongxing Co., and others, focusing on companies with strong dividend policies and growth potential [4] - The report highlights the importance of water price reforms, with Guangzhou implementing significant price increases, which are expected to drive profitability [13][14] Equipment and Technology - The penetration rate of new energy sanitation vehicles increased by 6.14 percentage points to 14.55% in the first four months of 2025, with sales of new energy sanitation vehicles rising by 73% [21][22] - The report notes the profitability challenges in biodiesel production, with current prices leading to negative margins [36] Market Performance - The environmental protection and public utilities index rose by 0.81% from June 2 to June 6, 2025, underperforming compared to the broader market indices [44] - Top-performing stocks in the environmental sector included Jingyuan Environmental and Juguang Technology, with significant price increases [46]

Investment Rating - The report maintains an "Increase" rating for the environmental protection industry [1] Core Viewpoints - The national green electricity direct connection policy opens up cooperation space for waste incineration power generation and IDC [9][12] - The solid waste sector is expected to increase dividends and improve ROE through heat supply and IDC expansion [1][14] - The industry is entering a mature phase, leading to reduced capital expenditures and improved free cash flow, which enhances dividend payouts [14][17] Summary by Sections Industry Trends - The environmental protection sector is experiencing a decline in capital expenditures, leading to a significant improvement in free cash flow and increased dividends [14] - The waste incineration sector is seeing a trend towards cost reduction and efficiency improvements, which enhances ROE [14][15] Key Recommendations - Strongly recommended companies include: Huanlan Environment, Green Power, Yongxing Co., China Everbright Environment, Junxin Co., Yuehai Investment, and others [1] - Companies to watch include: Lian Tai Environmental Protection, Wangneng Environment, and Beikong Water Group [1] Policy Tracking - The green electricity direct connection policy requires new projects to have over 80% green electricity usage, which is expected to drive the integration of waste incineration power generation with data centers [12][13] - The policy aims to facilitate the supply of green electricity to high-energy-consuming industries, enhancing economic efficiency and stability [10][12] Financial Performance - The water service sector is projected to see stable growth and high dividends, with water price reforms expected to reshape growth and valuation [17][19] - The report highlights specific dividend payouts for companies like Junxin Co. (5.07 billion CNY), Green Power (4.18 billion CNY), and Huanlan Environment (6.52 billion CNY) for 2024 [14][17] Market Performance - The environmental protection and public utilities index rose by 3.53%, outperforming the broader market indices [50] - Notable stock performances include Yuhua Tian (up 55.7%) and Boschke (up 42.56%) [51]

Investment Rating - The report maintains an "Accumulate" rating for the environmental protection industry [1]. Core Insights - The report highlights the collaboration between Qiaoyin Co. and Guodi Center to advance humanoid robot applications in urban services, marking a significant development in the industry [9]. - It emphasizes the trend of decreasing capital expenditures in waste incineration, leading to improved free cash flow and increased dividends, while also noting the enhancement of ROE through efficiency improvements in heating and IDC collaborations [10][11]. - The water utility sector is experiencing stable growth and high dividends, with water price reforms expected to reshape growth and valuation [12][13]. Summary by Sections Humanoid Robot Development - Qiaoyin Co. has signed a cooperation agreement with Guodi Center to launch humanoid robots for urban services, with an initial order of 1,000 robots aimed at street sanitation applications [9]. Waste Incineration Sector - The report identifies two key factors for the solid waste sector: a decrease in capital expenditures leading to improved free cash flow and increased dividends, and a focus on efficiency improvements during the industry's maturity phase [10]. - Specific dividend forecasts for 2024 include: - Junxin Co.: cash dividend of 507 million yuan (+37%), dividend ratio of 94.59% (+22.78 percentage points), and a dividend yield of 4.4% - Green Power: cash dividend of 418 million yuan (+100%), dividend ratio of 71.45% (+38.23 percentage points), with A-share and Hong Kong dividend yields of 4.2% and 8.2% respectively - Hanlan Environment: proposed dividend of 652 million yuan (+67%), dividend ratio of 39.20% (+11.83 percentage points), and a dividend yield of 3.5% [10]. Water Utility Sector - The water utility sector is projected to see stable growth, with 2024 revenues of 65.5 billion yuan (-2%) and a net profit of 11.2 billion yuan (+27%), excluding one-time gains [12]. - Water price reforms in Guangzhou and Shenzhen are expected to drive a new round of price adjustments, enhancing profitability and stability in the sector [13][14]. Environmental Equipment and Renewable Energy - The report notes a 51% increase in sales of new energy sanitation vehicles in early 2025, with a penetration rate of 14.36%, reflecting a growing trend towards electrification in the sanitation equipment sector [29]. - The average price of biodiesel has decreased slightly, with a narrowing price gap between biodiesel and waste oil, impacting profitability [36]. Lithium Battery Recycling - The report indicates a slight decline in profitability in lithium battery recycling due to fluctuating metal prices and a stable discount coefficient, with average unit profits showing a minor decrease [39].

Investment Rating - The report maintains an "Accumulate" rating for the environmental protection industry [1] Core Views - The report highlights the collaboration between Qiaoyin Co. and Guodi Center to advance humanoid robot applications in urban services, marking a significant development in the industry [9] - It emphasizes that the solid waste sector is experiencing a decrease in capital expenditure, leading to improved free cash flow and increased dividends, while also enhancing return on equity (ROE) through efficiency improvements in heating and IDC [10][12] - The water services sector is noted for its stable growth and high dividends, with water price reforms expected to reshape growth and valuation [12][14] Summary by Sections Humanoid Robot Development - Qiaoyin Co. has signed a cooperation agreement with Guodi Center to launch humanoid robots for urban services, with an initial order of 1,000 robots aimed at street cleaning and maintenance [9] Solid Waste Management - The report identifies two key trends: a reduction in capital expenditure leading to improved free cash flow and increased dividends, and a focus on efficiency improvements as the industry matures [10] - Specific dividend forecasts for 2024 include: - Junxin Co.: cash dividend of 507 million yuan (+37%), dividend ratio of 94.59% (+22.78 percentage points), and a dividend yield of 4.4% - Green Power: cash dividend of 418 million yuan (+100%), dividend ratio of 71.45% (+38.23 percentage points), with A-share and Hong Kong stock dividend yields of 4.2% and 8.2% respectively - Hanlan Environment: proposed dividend of 652 million yuan (+67%), dividend ratio of 39.20% (+11.83 percentage points), and a dividend yield of 3.5% [10] Water Services - The water services sector is projected to see stable growth, with 2024 revenues of 65.5 billion yuan (-2%) and net profits of 11.2 billion yuan (+27%), excluding one-time gains [12] - Water price reforms in Guangzhou and Shenzhen are expected to drive a new round of price adjustments, enhancing profitability and stability [13][14] Industry Trends - The report notes a 51% increase in sales of new energy sanitation vehicles in the first quarter of 2025, with penetration rates rising to 14.36% [29] - The bio-diesel market is experiencing a decline in prices for both bio-diesel and waste oil, leading to a narrowing price gap [36] - The lithium battery recycling sector is facing slight declines in profitability due to fluctuating metal prices and discount coefficients [39]

Core Viewpoint - The water price reform plan in Guangzhou will take effect on June 1, 2025, addressing the long-standing cost pressures faced by local water supply companies and potentially catalyzing similar reforms in other cities [1][2] Summary by Sections Water Price Adjustment Details - The new pricing scheme will increase residential water prices to 2.55, 3.82, and 7.65 CNY per ton for the first, second, and third tiers, representing increases of 29%, 29%, and 93% respectively compared to the current rates [2] - Non-residential water prices will rise to 4.40 CNY per ton, reflecting a 27% increase [2] Financial Performance of Water Supply Companies - Guangzhou's water supply companies have faced continuous losses, with profits dropping from 333 million CNY in 2017 to a loss of 334 million CNY in 2023, excluding other income [2] - The current water pricing has not changed for over 12 years, leading to a ranking of 28th among 36 major cities in terms of residential water prices [2] Cost Transmission Mechanism - The lack of a smooth cost transmission mechanism is identified as a core reason for the declining profitability of Guangzhou's water supply companies [3] - The implementation of new management measures in 2021 aims to enhance the market-oriented nature of water pricing and establish a regulatory cycle for pricing adjustments every three years [3] Historical Context and Future Implications - Historical data indicates that price adjustments in major cities can catalyze reforms in other regions, with recent adjustments in cities like Shanghai, Nanjing, and Shenzhen [4] - As of April 2025, 39 cities have adjusted their water prices since the new management measures were introduced, indicating a trend towards improving the long-term returns of the water supply industry [4] Investment Recommendations - The ongoing improvements in water pricing policies and mechanisms are expected to benefit water utility assets significantly, with recommendations for companies such as China Water Affairs, Yuehai Investment, and others [5]