Investment Rating - The report maintains an "Accumulate" rating for the environmental protection industry [1] Core Views - The report emphasizes that the carbon quota for enterprises is linked to output without a total cap on emissions, indicating a dynamic adjustment mechanism based on production levels [9][10] - The report highlights the ongoing empowerment of Longjing Environmental Protection by Zijin Mining, with significant shareholding increases and stable management [13][14] - The report identifies a strong performance in the waste incineration sector, with capital expenditures decreasing and cash flow improving, leading to increased dividends [17][18] - The water service sector is seen as the next growth area, with marketization and cash flow improvements expected to drive performance [20][21] - The report notes a significant increase in sales of new energy sanitation vehicles, indicating a growing market penetration [22] Summary by Sections Industry News - The Ministry of Ecology and Environment has linked carbon quotas to enterprise output without setting an absolute cap on emissions, with a focus on performance ranking for 2025 [9] - Longjing Environmental Protection has seen significant shareholding increases from Zijin Mining, enhancing its operational capabilities [13][14] - The waste incineration sector is experiencing improved cash flow and dividend payouts due to reduced capital expenditures [17][18] - The water service sector is expected to benefit from market reforms and improved cash flow, positioning it for growth similar to the waste incineration sector [20][21] - Sales of new energy sanitation vehicles have increased by 61.32%, with market penetration rising to 18.02% [22] Company Tracking - Longjing Environmental Protection's new projects in green electricity and energy storage are expected to contribute significantly to its growth [14][15] - The report tracks the performance of various companies in the waste management sector, highlighting improved cash flow and dividend potential [17][18] - The water service companies are noted for their stable performance and high dividend payouts, with expectations for increased cash flow in the coming years [20][21] Market Performance - The report provides insights into the performance of the environmental protection sector, noting a positive trend in stock performance and market interest [3][4]

Investment Rating - The report maintains a "Positive" investment rating for the environmental industry [10]. Core Insights - The environmental sector's heavy positions in public funds have decreased, with the top ten holdings totaling approximately 5.438 billion yuan, accounting for 0.13% of all disclosed fund stock holdings, a decrease of 0.10 percentage points from the previous quarter [2][4][18]. - The A-share environmental sector is currently underweight, with a standard allocation ratio of 0.94% as of the end of Q3 2025 [4][18]. - The report highlights three investment styles in the environmental sector for Q3: market hot themes, absolute returns, and marginal changes [7][33]. Summary by Sections Fund Holdings - As of Q3 2025, the top heavy positions in public funds include Shanghai Xiba (0.91 billion yuan), Huanlan Environment (0.82 billion yuan), and Weiming Environmental (0.63 billion yuan) [5][29]. - The number of funds holding significant positions in leading companies reflects market attention, with Huanlan Environment leading with 59 funds [5][23]. Market Trends - The report notes a shift towards solid battery-related stocks and waste incineration leaders, indicating a growing market risk appetite [7][33]. - The environmental sector is experiencing a transition from government to business (ToB) and consumer (ToC) models, which is expected to improve cash flow and valuation recovery [19][35]. Investment Strategy - The report suggests focusing on companies with long-term value in waste incineration and water assets, such as Huanlan Environment, Guangda Environment, and Weiming Environmental [8][36]. - It emphasizes the importance of detecting service companies and environmental sanitation firms, highlighting potential growth in these areas [43]. Performance Metrics - The report indicates that the environmental sector's performance metrics are currently at historical lows, with a notable decline in heavy positions due to market concerns over subsidy adjustments and economic pressures [19][33]. - The report also discusses the potential for valuation recovery as companies explore new growth avenues and improve operational cash flows [19][35].