Summary of Hanlan Environment Conference Call Company Overview - **Company**: Hanlan Environment - **Industry**: Waste-to-energy and solid waste management Key Financial Highlights - **Net Profit**: In the first half of 2025, Hanlan Environment reported a net profit of 906 million yuan, a year-on-year increase of 4%. Excluding one-time gains from the previous year, the actual growth rate was 22% [2][4] - **Q2 Performance**: In Q2 2025, the net profit attributable to shareholders was 488 million yuan, representing an 18% year-on-year increase after excluding the impact of the acquisition of Yuefeng [2][11] - **Cash Flow**: The operating cash flow for 2025 is expected to be no less than 3.3 billion yuan, with free cash flow projected to exceed 1.8 billion yuan [3][14] Acquisition Impact - **Yuefeng Acquisition**: The acquisition of Yuefeng significantly boosted Hanlan's performance, contributing 50 million yuan to net profit in the month following the acquisition [5][6] - **Profitability Enhancement**: The integration of Yuefeng is expected to enhance profitability through improved heating optimization, increased power generation efficiency, and financial synergies, potentially raising Yuefeng's performance from 800 million yuan to 1.1-1.2 billion yuan [12][15] Industry Insights - **Waste-to-Energy Industry Characteristics**: The industry benefits from flexible pricing, essential environmental needs, and low maintenance capital expenditures, leading to high return on equity (ROE) and stable cash flows [8] - **Solid Waste Sector Outlook**: The solid waste sector has significant growth potential, driven by efficiency improvements, mergers and acquisitions, and rising treatment fees. The valuation could see substantial increases, with potential for doubling in the next three years [9] Growth Projections - **Future Growth Rate**: Hanlan Environment anticipates a compound annual growth rate (CAGR) of over 15% from 2025 to 2027, with potential increases to 15-20% considering the enhancements from Yuefeng [13] - **Dividend Potential**: The company’s dividend potential is expected to reach 100% by 2026-2027, with a target to increase the dividend payout ratio to over 50%, potentially raising the dividend yield above 4.5% [16] Operational Efficiency - **Cost Control Measures**: Hanlan has focused on reducing capital expenditures and enhancing operational efficiency to improve financial performance and ROE. These strategies are expected to continue strengthening in 2025 and 2026 [17] Conclusion - Hanlan Environment is positioned for robust growth driven by strategic acquisitions, operational efficiencies, and favorable industry dynamics, with significant potential for increased profitability and shareholder returns in the coming years.

Core Viewpoint - The article discusses the phenomenon of "insufficient garbage supply" in China's waste incineration power generation industry, highlighting the transition from "garbage siege" to "garbage scarcity" and the challenges faced by incineration plants due to overcapacity and reduced waste generation [2][3][4]. Group 1: Industry Overview - In the past two decades, China has transformed its waste management approach, with the proportion of urban household waste treated by incineration rising from 9.8% in 2005 to 82.5% in 2023, while landfill treatment dropped from 85.2% to 7.5% [2]. - The number of waste incineration plants has increased from 67 to 1010, with an average capacity utilization rate of around 60% in recent years [3][4]. - The daily incineration capacity of waste has surged from 23.8 million tons in 2016 to 115.5 million tons in 2024, yet the industry average load factor remains below 60%, with 40% of capacity idle [9]. Group 2: Causes of Insufficient Garbage Supply - The insufficient garbage supply is attributed to two main factors: overestimation of future waste generation during planning and the impact of waste classification, which has diverted organic waste away from incineration [3][10]. - The construction of incineration plants has outpaced actual waste generation, leading to a supply-demand imbalance, with many plants operating at low capacity [10][11]. - The promotion of waste classification has resulted in a significant portion of waste being processed differently, reducing the amount available for incineration [11]. Group 3: Financial and Operational Challenges - The financial viability of incineration plants is increasingly challenged by the reduction of government subsidies and the need to diversify operations, such as providing steam and heat to nearby industries [4][20]. - The revenue structure of incineration plants relies heavily on government subsidies, which have been declining, leading to increased pressure on local governments to cover rising waste disposal fees [19][21]. - The average waste disposal fee has risen significantly, with some regions charging up to 150 yuan per ton, increasing the financial burden on local governments [23][24]. Group 4: Future Trends and Adaptations - The industry is expected to adapt by exploring new business models and expanding services beyond waste incineration, such as heat supply and sludge treatment [4][25]. - The article suggests that the industry must focus on improving economic efficiency and diversifying revenue sources to cope with the challenges of insufficient waste supply and subsidy reductions [25].

2025年上半年，E20环境平台固废产业研究中心主任潘功调研了20余家垃圾焚烧厂，发现其中三分之二的企业面临垃圾供给不足的问题。 今年四月份，他参观的一个垃圾焚烧厂在建成四年间负荷率仅为60%左右，主要原因是当初设计规划超前以及周边新厂分流。目前该垃圾焚烧厂已准备焚烧 部分政府协调的一般工业固废，同时也开始积极探索为周边工业企业供热。 但另一方面，垃圾焚烧厂"产能过剩"的情况也开始出现。E20研究院监测数据显示，近两年，国内垃圾焚烧发电项目的平均产能利用率为60%左右。"垃圾不 够烧"是如何发生的？ 一名垃圾焚烧厂负责人表示，过去多年，中国已实现城市和县区垃圾焚烧厂全覆盖，从"垃圾围城"到"产能过剩"，原因主要有两点：一是垃圾焚烧处理能力 在设计规划时为未来留有大量冗余，但后续垃圾产生量暂时没有达到预期，而垃圾的产生跟经济活动的活跃度有关；二是垃圾分类后，厨余垃圾被分走，影 响了垃圾产生的数量。 上述焚烧厂负责人告诉经济观察报："全国垃圾焚烧厂从最初的一百多座增加到如今的一千多座，增速很快。疫情后，'垃圾不够烧'的现象尤为明显。就未 来趋势看，在垃圾供给减少、国补退坡等因素影响下，焚烧厂必须向多元化经营转型， ...

Investment Rating - The report maintains an "Accumulate" rating for the environmental protection industry [1]. Core Views - The report emphasizes the improvement in cash flow and dividend potential due to reduced capital expenditures in the waste management sector, alongside enhanced return on equity (ROE) through quality improvements in heating and IDC collaborations [1][11][15]. Summary by Sections Industry Trends - The environmental protection sector is experiencing a significant shift with a 9% increase in the sector's performance compared to the Shanghai and Shenzhen 300 indices [3]. - The report highlights a 73% increase in sales of new energy sanitation vehicles, with a penetration rate rising to 14.95% [25]. Key Recommendations - The report recommends several companies for investment, including Huaneng Environment, Green Power, and Yongxing Co., among others, due to their strong dividend potential and operational efficiency [5][11]. - It suggests focusing on companies like Yuehai Investment and Xingrong Environment for their robust cash flow and high dividend yields [17]. Policy Tracking - The Ministry of Ecology and Environment has issued a notice to enhance the quality of law enforcement, which is expected to improve operational efficiency and compliance in the industry [9][10]. - The report notes that the government is concentrating on environmental governance funding for 2025, which may positively impact the sector [7]. Financial Performance - The waste management sector is projected to see a significant increase in free cash flow, with dividends expected to rise as capital expenditures decrease [11][12]. - Specific companies are highlighted for their dividend growth, such as Junxin Co. with a 37% increase in cash dividends and Green Power with a 100% increase [12][13]. Market Dynamics - The report discusses the trend of garbage incineration and IDC collaborations as a new growth avenue, emphasizing the advantages of clean and efficient energy generation [14]. - The water utility sector is also highlighted for its stable growth and high dividends, with ongoing water price reforms expected to enhance profitability [15][17]. Sector Performance - The environmental protection and public utilities index rose by 2.69% during the week of July 7-11, 2025, outperforming the broader market indices [45].

Investment Rating - The report maintains a "Positive" investment rating for the environmental sector, consistent with the previous rating [2]. Core Insights - The waste incineration industry is entering a mature development phase, with structural differences in capacity utilization across regions. The average load rate of waste incineration plants in China is approximately 60%, indicating underutilization. However, provinces like Guangdong and Zhejiang have higher construction progress but still face low capacity utilization rates of 60% and 49% respectively, below the national average of 73% [18][19][22]. - The report highlights that the number of waste incineration plants in China has increased from 278 in 2017 to 925 in 2023, a growth of 232.7%. The waste incineration capacity has reached 1.035 million tons per day, surpassing the "14th Five-Year Plan" target [18][19]. - The report suggests that the "14th Five-Year Plan" emphasizes environmental quality and green low-carbon development, which is expected to maintain high prosperity in energy conservation and environmental protection sectors. The water and waste incineration sectors are seen as stable profit generators with positive cash flow [40]. Summary by Sections Market Performance - As of July 11, the environmental sector index rose by 3.17%, outperforming the broader market, with specific sub-sectors like environmental equipment increasing by 6.99% [9][12]. Industry Dynamics - Recent initiatives include subsidies for green electricity in Beijing and the establishment of zero-carbon parks to support carbon neutrality goals. These measures are part of a broader strategy to enhance renewable energy usage and promote green transformation [27][28]. Special Topic: Waste Incineration - The report discusses the structural differences in capacity utilization among provinces, with some regions achieving around 90% utilization while others lag behind. The average capacity utilization for listed companies is projected to be 107% in 2024, indicating efficient operations [19][22][26]. Investment Recommendations - The report recommends focusing on high-quality operational assets in the water and waste incineration sectors, highlighting companies such as Huanlan Environment, Xingrong Environment, and Hongcheng Environment as key investment opportunities [40].

Core Viewpoints - In the first half of 2025, the profitability of thermal power companies improved due to a decrease in coal prices from 765 RMB/ton to 621 RMB/ton, leading to an 11% recovery in stock prices since late January [4] - The thermal power sector is expected to see positive factors in electricity volume, price, and costs in 2025, indicating growth potential [4] - Hydropower and nuclear power sectors remain stable with strong cash flows and high dividend yields, while the deepening of domestic electricity reforms is likely to create diverse investment opportunities [4] Thermal Power - The comprehensive electricity price for thermal power is expected to remain stable in 2025, with coal prices trending downward, leading to further profit recovery in the industry [7] - It is recommended to focus on thermal power companies with smaller declines in electricity prices and lower proportions of long-term coal contracts [7] - The implementation of capacity pricing and auxiliary service income is expected to stabilize thermal power profitability [61] Hydropower - High dividend yields attract incremental capital, with the dividend yield of Changjiang Electric Power remaining between 3.2% and 4.4% from 2017 to 2024 [80] - The hydropower sector is expected to see growth due to the commissioning of new projects, with over 25 million kW of hydropower capacity under construction [73] Nuclear Power - The approval of 11 new nuclear units in 2024 marks a significant acceleration in nuclear project approvals, indicating a stable growth trajectory for the sector [82] - By the end of 2024, China Nuclear Power and China General Nuclear Power have substantial capacities under construction, ensuring future growth [86] Renewable Energy - The installation of wind and solar power is expected to maintain high growth rates, with cumulative installed capacity reaching 1.41 billion kW by the end of 2024 [92] - The implementation of the 136 Document is expected to promote the full market entry of renewable energy, leading to a surge in installed capacity [99] Waste Incineration - The waste incineration sector is entering a mature phase, with operating cash flow and free cash flow both increasing by 18% year-on-year in 2024 [119] - Companies in this sector are expanding overseas, establishing a competitive advantage in countries along the Belt and Road Initiative [122]

Core Viewpoint - The waste incineration industry in China has reached a critical juncture, facing challenges such as insufficient waste supply in certain regions despite having the highest waste incineration capacity globally [1] Group 1: Industry Development - From 2005 to 2023, the proportion of urban household waste disposed of by landfill decreased from 85.2% to 7.5%, while incineration increased from 9.8% to 82.5% [3] - The daily harmless treatment capacity rose from 33,000 tons to 861,800 tons, and the number of waste incineration plants increased from 67 to 1,010 [3] - However, the average capacity utilization rate of domestic waste incineration power projects has been around 60% in recent years, with several listed companies reporting "insufficient waste" [3] Group 2: Challenges and Responses - The issue of "insufficient waste" is particularly prominent in certain regions, often due to overly ambitious planning and inadequate waste collection in rural areas [3] - Companies are employing various strategies to improve capacity utilization, including expanding multi-source waste processing and increasing collaborative disposal efforts [3] - The cost of excavating existing landfill sites is high, with projects like the Guangzhou Xingfeng emergency landfill estimated at approximately 1.2 billion yuan, and the average cost for excavating and treating waste at the Longgang New Meizhou landfill reaching 528.26 yuan per cubic meter [3] Group 3: Mergers and Acquisitions - The industry is witnessing a trend of mergers and acquisitions, characterized by a "one strong, many strong" pattern, with companies like Zhongke Environmental acquiring waste incineration firms for over 350 million yuan [4] - Shenzhen Energy is also investing in projects that include waste incineration components, indicating a cross-regional strategy to secure waste supply [4] - Despite the trend, experts believe there will not be a large-scale merger wave due to the predominance of state-owned enterprises in the sector, which complicates acquisition processes [4] Group 4: Market Expansion - Companies are looking to expand into county-level and overseas markets to secure waste supply, with the government promoting "waste incineration in counties" [4] - However, experts express skepticism about the county market, suggesting that cross-county collaborative processing should be prioritized [4] - The overseas market presents significant opportunities, with companies like Weiming Environmental focusing on projects in Indonesia, marking a shift towards international expansion [4]

Investment Rating - The report maintains an "Accumulate" rating for the environmental protection industry [1]. Core Views - The report highlights that the environmental protection sector is entering a mature phase, leading to improved free cash flow and increased dividends due to reduced capital expenditures. The focus is on enhancing operational efficiency through heat supply and IDC collaborations, which are expected to boost ROE and valuations [12][14]. Summary by Sections Industry Trends - The environmental protection sector is experiencing a shift towards maturity, with capital expenditures decreasing and free cash flow turning positive in 2023, continuing to improve in 2024. This trend is expected to enhance dividend payouts significantly [12][14]. - The report notes that the waste incineration segment is seeing a decline in capital expenditures, which is positively impacting free cash flow and dividend distributions [12][14]. Company Insights - Huanlan Environment is expanding its heat supply business, leveraging existing waste incineration projects to improve operational efficiency and cash flow. The company has signed multiple heat supply agreements and is expected to increase its heat supply volume significantly in the coming years [9][10][11]. - The report emphasizes the strong dividend potential of several companies, including Junxin Co. with a cash dividend of 507 million yuan in 2024, Green Power with 418 million yuan, and Huanlan Environment with a proposed dividend of 652 million yuan [12][13][14]. Market Developments - The report indicates that the water services sector is also showing stable growth, with a projected revenue of 655 billion yuan in 2024, despite a slight decline due to one-time gains. The sector is expected to benefit from ongoing water price reforms, which will enhance profitability and valuation [16][18][19]. - The report highlights the increasing penetration of new energy sanitation vehicles, with sales growing by 73% in the first five months of 2025, indicating a shift towards more sustainable practices in the industry [26][32]. Future Outlook - The report suggests that the environmental protection industry is poised for a new phase of growth driven by market reforms and operational efficiencies. Companies that can effectively manage their cash flows and adapt to changing market conditions are expected to see significant valuation increases [20][24].

Investment Rating - The report maintains an investment rating of "Outperform the Market - A" for the environmental and public utility sector [5]. Core Insights - The global sustainable aviation fuel (SAF) market is projected to experience rapid growth due to regulatory requirements and voluntary commitments from airlines, with demand expected to reach 15.5 million tons by 2030 and 196 million tons by 2050 [20][30]. - The supply side is anticipated to face a significant shortfall of approximately 26 million tons by 2035, primarily due to limitations in feedstock availability for the dominant HEFA technology [34][37]. - China is actively promoting SAF through various policies and pilot applications, with expectations for domestic SAF production capacity to reach 2.5 million tons per year by the end of 2025 [39][45]. Summary by Sections 1. Weekly Topic: Embracing the Global Biojet Fuel Blue Ocean Market - The International Civil Aviation Organization (ICAO) and the International Air Transport Association (IATA) aim for net-zero emissions by 2050, with SAF being a crucial component for carbon reduction in aviation [20]. - Global SAF demand is projected to grow significantly, with 133 out of 193 ICAO member countries submitting action plans related to SAF [22]. - The report highlights specific regulatory requirements for SAF blending in various countries, including the EU's ReFuelEU Aviation Regulation, which mandates a minimum SAF content of 2% by 2025 [25][26]. 2. Market Review - The Shanghai Composite Index rose by 3.35% from June 23 to July 4, while the environmental index increased by 4.79%, outperforming the composite index [2][50]. 3. Industry Dynamics - National electricity load reached a historical high of 1.465 billion kilowatts on July 4, 2025, indicating robust demand in the energy sector [11]. - The report discusses various policies aimed at promoting renewable energy and SAF, including the "14th Five-Year Plan" for green development in civil aviation [42]. 4. Investment Portfolio and Recommendations - The report suggests focusing on companies with established SAF production capabilities, such as Jiaao Environmental, Pengyao Environmental, and Haixin Energy Technology, due to their potential in the growing SAF market [49]. - In the public utility sector, it recommends investing in coal-fired power companies like Sheneng Co. and Zhejiang Energy, as well as renewable energy firms involved in integrated power solutions [12]. 5. Environmental Sector Insights - The report emphasizes the potential for growth in the waste incineration sector, with companies like Weiming Environmental and Junxin Co. expected to benefit from improved cash flow and new revenue streams [13]. - Water service companies are also highlighted for their potential profitability as residential water prices gradually adjust [13].

Market Overview - In June, the CSI 300 index rose by 2.50%, while the public utility index fell by 0.54% and the environmental index increased by 0.81%, with relative returns of -3.04% and -1.42% respectively [1][14] - Among the 31 primary industry sectors, public utilities and environmental sectors ranked 25th and 19th in terms of growth [1][14] - The environmental sector saw a rise of 1.08%, while within the electricity sector, thermal power decreased by 0.94%, hydropower fell by 1.76%, and renewable energy generation increased by 1.98% [1][26] Important Events - The Central Financial Committee's sixth meeting emphasized strengthening and expanding the marine industry, promoting orderly construction of offshore wind power [15] - National electricity load exceeded 1.465 billion kilowatts on July 4, marking a historical high, with a rise of approximately 200 million kilowatts since the end of June and an increase of nearly 150 million kilowatts year-on-year [15] Supply and Demand Analysis - The electricity industry has experienced three cycles of supply and demand changes since 2000, with future supply expected to increase significantly due to new thermal power units coming online and growth in renewable and nuclear power installations [2][22] - The demand side shows a decline in electricity consumption growth, particularly in high-energy-consuming industries, leading to a stabilization of overall electricity demand growth [2][23] Investment Strategy - Public Utilities: Recommendations include large thermal power companies like Huadian International and Shanghai Electric, as well as leading renewable energy firms such as Longyuan Power and Three Gorges Energy [3][24] - Nuclear power companies like China Nuclear Power and China General Nuclear Power are expected to maintain stable profitability, with a recommendation for China Power Investment Corporation as a restructuring target [3][24] - In the water and waste incineration sectors, companies like China Everbright Environment and Zhongshan Public Utilities are highlighted for their cash flow improvements [3][24] Key Company Profit Forecasts - Huadian International (600027.SH): Expected EPS of 0.46 in 2024, PE ratio of 12.2 [8] - Longyuan Power (001289.SZ): Expected EPS of 0.75 in 2024, PE ratio of 22.3 [8] - China Nuclear Power (601985.SH): Expected EPS of 0.46 in 2024, PE ratio of 20.5 [8] - China Everbright Environment (0257.HK): Expected EPS of 0.55 in 2024, PE ratio of 7.3 [8]