Investment Highlights - The report highlights significant acceleration in national subsidies recovery for the environmental sector in July-August 2025, with Everbright receiving 2.064 billion yuan, surpassing the 1.534 billion yuan received in the same period of 2024 [1][4] - The solid waste sector has shown improvements in return on equity (ROE) and cash flow, with a 1% increase in revenue and an 8% increase in net profit for the first half of 2025 [5][6] - The report recommends several companies for investment, including Hanlan Environment, Green Power, and Everbright Environment, among others [2] Solid Waste Sector Insights - The solid waste sector's performance in the first half of 2025 includes a 9% increase in operating cash flow, reaching 6.9 billion yuan, and a 24% increase in free cash flow compared to the first half of 2024 [5][6] - The average waste incineration companies saw a 1.8% increase in tonnage output and a 1.2% increase in grid-connected output in the first half of 2025 [5][6] - Companies are expanding their operations and improving efficiency, with notable increases in heating supply rates for several firms [5][6] Water Sector Analysis - The water sector is expected to experience a cash flow turnaround, with a projected increase in free cash flow for companies like Xingrong and Shouchuang starting in 2026 [6] - Price reforms in water services are anticipated to enhance growth and valuation, with recent price adjustments in cities like Guangzhou and Shenzhen [6] Sanitation Sector Developments - The penetration rate of electric sanitation vehicles is accelerating, with a 77.6% increase in sales of new energy sanitation vehicles in the first seven months of 2025 [7][8] - The report notes a significant rise in the number of automated sanitation projects, indicating a growing trend towards automation in the sector [7][8] Industry Tracking - The report tracks the performance of various sectors, including the increase in sales of sanitation vehicles and the profitability of biodiesel production, with a notable rise in the price of used cooking oil [8] - Lithium battery recycling is also highlighted, with improvements in profitability due to changes in pricing for lithium and cobalt [8]

Investment Rating - The report provides a positive outlook on the environmental industry, highlighting robust operational growth and improved cash flow, particularly in waste incineration and water services [2][6]. Core Insights - The environmental industry is experiencing steady growth in operations and cash flow improvements, with significant opportunities arising from the automation and electrification of sanitation services [5][29]. - Waste incineration companies have shown enhanced return on equity (ROE) and cash flow, leading to consistent dividend payouts [3][6]. - Water services are witnessing stable performance with declining capital expenditures and accelerated water price increases [4][6]. - The sanitation sector is rapidly adopting electric vehicles, with a notable increase in sales of new energy sanitation equipment [5][6]. Summary by Sections Waste Incineration - The average waste incineration companies reported a 1.8% increase in waste processed per ton and a 1.2% increase in electricity sold per ton in the first half of 2025 [6]. - Significant growth in heating services was observed, with top companies like Haichuang and Green Power showing increases of 170% and 115% respectively [6]. - The sector is focusing on operational efficiency and expanding B-end and C-end services to enhance profitability and cash flow [6]. Water Services - The water services sector reported a 2% decline in revenue but a 6% increase in net profit in the first half of 2025, with notable performance from Zhongshan Public Utilities due to high investment returns [14][15]. - Major cities have implemented water price increases, which are expected to drive a new round of water price reforms [6][15]. - Key recommendations include companies like Yuehai Investment and Xingrong Environment, which are expected to benefit from price adjustments and stable growth [6][15]. Sanitation - The penetration rate of electric sanitation vehicles is accelerating, with a 77.6% increase in sales of new energy sanitation vehicles in the first half of 2025 [5][6]. - The rise of automation in sanitation is evident, with over 290 new projects in the autonomous driving sector, of which more than 90 are focused on automated cleaning [6]. - Recommended companies in this sector include Yutong Heavy Industry and others that are well-positioned to capitalize on these trends [6].

Investment Rating - The investment rating for the company is maintained as "Buy" with a target price of RMB 22.46 [5]. Core Views - The company is expected to benefit from the trends of electrification and intelligence in sanitation services, with a robust pipeline of contracts contributing to stable revenue [5][6]. - The company reported a revenue of RMB 2.423 billion for H1 2025, a year-on-year decrease of 1.55%, primarily due to a reduction in intelligent equipment revenue [5]. - The net profit attributable to the parent company for H1 2025 was RMB 93.74 million, a slight decrease of 0.93% year-on-year, mainly due to increased provisions for bad debts [5]. Financial Forecasts and Valuation - Revenue projections for the company are as follows: RMB 5.040 billion in 2024, RMB 5.557 billion in 2025 (up 10.27%), RMB 6.131 billion in 2026 (up 10.32%), and RMB 6.767 billion in 2027 (up 10.39%) [4]. - The net profit attributable to the parent company is forecasted to be RMB 145.44 million in 2024, RMB 179.99 million in 2025 (up 23.75%), RMB 212.94 million in 2026 (up 18.30%), and RMB 243.04 million in 2027 (up 14.14%) [4]. - The expected EPS for 2025 is RMB 0.43, with a projected PB of 2.7 times for 2025, leading to a target price of RMB 22.46 [9]. Business Segments - In the sanitation services segment, the company has annual contracts worth RMB 4.152 billion, which are expected to contribute stable income [6]. - The company achieved a market share of 3.53% in the sanitation equipment market and 8.27% in the new energy sanitation equipment market, ranking fifth and third in the industry, respectively [7]. - The company has successfully deployed cleaning robots in approximately 40 cities, showcasing its commitment to the electrification and intelligence transformation of sanitation equipment [8].

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