Investment Rating - The industry investment rating is "Positive" and maintained [11] Core Insights - As of Q2 2025, the A-share environmental sector's heavy positions accounted for 0.24%, reflecting a slight increase of 0.01 percentage points from the previous quarter. The overall market is currently in a low allocation state, with a standard allocation ratio of 1.06% [6][18] - The top ten heavy positions in public funds totaled approximately 7.64 billion yuan, representing 0.25% of all disclosed fund stock holdings. The leading companies in terms of heavy positions include Hanlan Environment (1.21 billion yuan), Weiming Environmental (1.19 billion yuan), and Longjing Environmental (610 million yuan) [2][29] Summary by Sections Fund Holdings - The heavy position ratio for the A-share environmental sector was 0.24% at the end of Q2 2025, with a slight increase of 0.01 percentage points. A total of 320 fund products held heavy positions in environmental companies, accounting for 4.15% of all disclosed fund products [6][18] - The top heavy positions by market value were Hanlan Environment (1.21 billion yuan), Weiming Environmental (1.19 billion yuan), Longjing Environmental (610 million yuan), Huicheng Environmental (540 million yuan), and Juguang Technology (530 million yuan) [29][34] Market Trends - The environmental sector is experiencing a valuation recovery driven by multiple factors, including market preference for solid waste incineration stocks, which are expected to benefit from public utility market reforms and carbon market expansion [8][36] - The report highlights a positive outlook for the second half of 2025, particularly for solid waste incineration and water assets, with recommended stocks including Hanlan Environment, Weiming Environmental, and others [36][37] Company Performance - The number of funds holding significant positions in companies like Hanlan Environment (56 funds), Guangda Environment (21 funds), and others indicates a growing market interest [7][23] - Notable changes in heavy stock market value ratios include significant increases for Shanghai Xiba (up 4.63 percentage points) and Huicheng Environmental (up 1.39 percentage points) [34][36] Investment Strategy - The report suggests a focus on companies transitioning towards ToB (business-to-business) models, which is expected to enhance cash flow and support valuation recovery. Key companies to watch include Hanlan Environment, Guangda Environment, and others [36][39] - The environmental sector is seen as having a solid growth trajectory, with specific attention to waste incineration, water services, and testing services as areas of potential investment [39][40]

Investment Rating - The industry investment rating is "Positive" and maintained [8] Core Viewpoints - Since 2024, some waste incineration and water service companies have announced reductions in loan interest rates and financial expenses, which are expected to contribute positively to their performance in a low-interest environment [2][16] - The report emphasizes the importance of focusing on companies with stable performance, increased dividends, valuation recovery, and declining borrowing costs in the waste incineration and water service sectors [6][40] Summary by Sections Debt Situation - Waste incineration and water service projects typically have a high debt financing ratio, often around 70%. These projects require significant upfront investment over 1-2 years, followed by a 20-30 year period to recover costs through operational income [4][17] - As of the end of 2024, the outstanding debt for major companies in the sector includes: - China Everbright International: 91.7 billion HKD - Conch Venture: 28.2 billion HKD - Hanlan Environment: 16.3 billion CNY - Beijing Enterprises Water Group: 75.5 billion CNY - Yuehai Investment: 23.9 billion HKD - Xingrong Environment: 14.8 billion CNY [4][17] Trends in Debt Ratios - The debt ratio for waste incineration companies has shown a declining trend over the past two years, while the increase in water service companies' debt ratios has slowed down [5][21] Impact of Borrowing Costs - Since 2018, interest rates have been on a downward trend, and as new project loan rates decrease, some companies are replacing high-interest loans. This could lead to further reductions in borrowing costs, positively impacting the performance of waste incineration and water service companies [6][31] - The report recommends focusing on companies in the waste incineration and water service sectors that exhibit stable performance and declining borrowing costs, highlighting companies such as Hanlan Environment, Xingrong Environment, China Everbright International, and others [6][40] Performance Sensitivity to Borrowing Costs - If the average borrowing cost decreases by 10, 30, or 50 basis points in 2025, the estimated profit elasticity for leading companies such as Beijing Enterprises Water Group, China Everbright International, and Green Power will be 3.62%, 10.86%, and 18.10% respectively [38] - If the average borrowing cost reaches 2.50% in 2025, the profit elasticity for top companies will be significantly higher, with estimates of 28.28% for Yuehai Investment and 20.57% for Beijing Enterprises Water Group [38] Industry Growth and Transformation - The waste incineration and water service sectors are experiencing steady growth, improved cash flow, and increased dividends. Recent market reforms are pushing the industry towards a transformation from government-oriented (To G) to business and consumer-oriented (To B, To C) models, which is expected to accelerate valuation recovery [6][40]

Investment Rating - The report maintains a "Positive" investment rating for the environmental protection industry [10] Core Insights - In 2023, insurance capital has collectively acquired stakes in five environmental companies, focusing on waste incineration and water utility state-owned enterprises, which exhibit stable operational performance and significant free cash flow improvement, indicating high dividend potential [2][6][7] - The report emphasizes the long-term investment value of waste incineration and water utility assets due to their high dividend potential and low valuation, recommending several companies in these sectors [8][38] Summary by Sections Insurance Capital Allocation - Insurance capital is increasingly allocating to equity investments due to declining net investment returns and the need for higher-yielding assets [6][18] - Policy changes and the expansion of long-term investment trials are encouraging insurance capital to invest in dividend and high ROE assets [24] Focus on Waste Incineration and Water Utility Assets - Insurance capital has targeted five environmental companies, primarily in waste incineration and water utility sectors, indicating a preference for stable operational assets [7][26] - The report highlights the potential for increased dividend payouts as the industry has passed its infrastructure peak, with a focus on long-term equity investments [37] Long-term Investment Value - Waste incineration and water utility assets are characterized by steady growth, improving cash flows, and increasing dividends, making them attractive for long-term investment [38][41] - The report identifies specific companies such as Huanlan Environment, Xingrong Environment, and others as key recommendations for investment [8][38] Financial Performance and Valuation - The report notes that the financial performance of waste incineration and water utility companies has shown resilience, with significant improvements in free cash flow and dividend payouts expected in the coming years [30][41] - Valuation metrics indicate that these companies are not overvalued, with PE ratios suggesting room for valuation recovery [34][41]

Investment Rating - The report maintains an "Increase" rating for the environmental protection industry [1] Core Views - The report highlights the collaboration between Jinko Environment and Kunheng International to issue RWA, enhancing the market value of quality assets [9] - Huanlan Environment's internal growth and acquisition performance exceeded expectations, with a significant increase in net profit [12] - The report emphasizes the decline in capital expenditure in waste incineration, leading to improved free cash flow and increased dividends, while also noting the efficiency improvements in heating and IDC that boost ROE and valuation [16] - The water service sector is positioned as the next growth area similar to waste incineration, with a focus on marketization and cash flow improvements [19] Summary by Sections Jinko Environment - Jinko Environment has reached a cooperation intention for RWA issuance with Kunheng International, aiming to enhance the market value of its quality assets through digital asset management [9][10] Huanlan Environment - Huanlan Environment reported a net profit of 9.67 billion yuan for H1 2025, a year-on-year increase of 9.00%, with a significant internal growth rate of 18% in Q2 2025 [12][14] - The integration of Yuefeng has contributed positively to the company's performance, with a monthly profit contribution exceeding previous levels [14][15] Waste Incineration - The report notes a decrease in capital expenditure in the waste incineration sector, leading to a substantial improvement in free cash flow and increased dividends for companies like Junxin and Green Power [16][17] - The sector is transitioning into a mature phase, with a focus on efficiency improvements and cost reductions to enhance ROE [16][18] Water Services - The water service sector is highlighted as a stable and low-valuation area with high dividend potential, with companies like Xingrong and Hongcheng Environment expected to see significant cash flow improvements [19][21] - The report anticipates a shift in water pricing policies that will support sustainable growth and valuation increases similar to trends observed in the US water industry [20][21] Environmental Equipment - The report indicates a 90.56% year-on-year increase in sales of new energy sanitation vehicles, with a penetration rate of 15.86% [28] - The overall sales of sanitation vehicles increased by 3.59%, indicating a positive trend in the environmental equipment sector [28][34] Biodiesel and Lithium Battery Recycling - Biodiesel prices remained stable, but profit margins have decreased, with the average profit per ton dropping to 130 yuan [42] - The lithium battery recycling sector is experiencing an upward trend in metal prices, leading to slight improvements in profitability [44]

Investment Rating - The report maintains an "Outperform" rating for the environmental and public utility sector [7]. Core Insights - The report emphasizes the potential of Real World Assets (RWA) in conjunction with renewable energy companies, highlighting that RWA could become a significant development direction for stablecoins, with a projected market size of $16 trillion by 2030 [24][39]. - The report discusses the recent advancements in RWA, particularly in Hong Kong, where the Ensemble project has initiated themes related to green and sustainable finance, indicating a shift towards tokenizing assets like carbon credits and renewable energy charging stations [39][40]. Summary by Sections 1. RWA and Renewable Energy - RWA connects real-world assets with digital finance, providing unique value in bridging virtual and real economies [27]. - The Ensemble project in Hong Kong includes green finance as a key theme, with the first project involving the tokenization of electric vehicle charging stations [39][40]. - RWA technology can lower investment thresholds and attract more investors, offering new financing channels for renewable energy companies [42]. 2. Market Review - From July 5 to July 18, the Shanghai Composite Index rose by 1.79%, while the environmental index increased by 2.66%, outperforming the composite index [43]. - The public utility index decreased by 0.27%, underperforming the Shanghai Composite Index by 2.06 percentage points [43]. 3. Market Information Tracking - In July 2025, the average transaction price for electricity in Jiangsu was 395.6 RMB/MWh, up 26.47% month-on-month [55]. - The price of thermal coal at Qinhuangdao Port was reported at 642 RMB/ton, reflecting a 19 RMB/ton increase from the previous week [58]. 4. Industry Dynamics - The report notes that the garbage incineration sector is seeing improved cash flow due to debt reduction policies, while companies are exploring new trends such as high-energy direct power supply [13]. - The water service sector is expected to enhance profitability as residential water prices gradually adjust [13]. 5. Investment Portfolio and Recommendations - For public utilities, the report suggests focusing on thermal power companies that are expected to perform well due to proximity to coal production areas and cost reductions [12]. - In the green energy sector, companies that integrate power generation, sales, and consumption are recommended for their resilience against market disruptions [12].

Summary of Conference Call Records Industry or Company Involved - The records cover various industries including technology, military, environmental services, and pharmaceuticals, with specific mentions of companies like China Electronics, Hanlan Environment, and Baiji Shenzhou. Core Points and Arguments Trade and Currency Dynamics - The easing of trade tensions between the US and China has positively impacted the stock market, with the US market recovering to pre-trade war levels [1] - The depreciation of the US dollar is expected to lead to capital flows into the Asia-Pacific markets, particularly benefiting major economies in the region [2] Market Performance and Investment Focus - April's market performance was strong, particularly in growth and technology sectors, although these sectors showed relative weakness [3] - The focus for May should be on sectors like technology, self-sufficiency in manufacturing, and improvements in fundamentals such as semiconductors and innovative pharmaceuticals [4][5] Artificial Intelligence and Data - The future of technology is expected to be driven by artificial intelligence, with a significant gap in data availability between China and the US being a critical factor [6][7] - High-quality datasets are becoming a key competitive advantage in AI applications, with companies encouraged to protect their data [8] Company-Specific Insights - China Electronics is projected to see significant growth in IT data business revenue, with expectations of tripling revenue in the coming year [9] - The military and aerospace sectors are expected to benefit from increased demand for domestic production and exports, particularly in the context of geopolitical tensions [10][12] Financial Performance and Projections - The company involved in military-grade alloys has shown stable profitability with a gross margin around 30%, and is expected to see revenue growth from 1.5 billion to 4 billion by 2025 [13][14] - Hanlan Environment is highlighted for its strong cash flow and potential for increased dividends, with a projected significant rise in cash distribution capabilities [16][18] Environmental Services Sector - The garbage incineration power generation sector is expected to see operational efficiency improvements, with potential for significant revenue growth through partnerships with data centers [19][20] - The sector is compared to distributed nuclear power in terms of stability and economic viability, indicating a strong future outlook [20][21] Pharmaceutical Industry - Baiji Shenzhou is recognized for its strong R&D capabilities and global commercialization potential, with projected profit growth reaching 6.7 billion by 2027 [32][35] - The company is positioned as a leader in blood cancer treatment, with multiple innovative drugs entering clinical stages [34][35] Robotics and Automation - The robotics sector is expected to see growth driven by partnerships with major companies like Tesla, with a projected 20% growth in the automotive sector [44] - The industrial automation segment is recovering, with significant growth anticipated in traditional industries and new energy sectors [46] Other Important but Possibly Overlooked Content - The records indicate a strong emphasis on the importance of data security and the competitive landscape in AI, highlighting the need for companies to protect their proprietary data [8] - The environmental services sector is undergoing a transformation with increased efficiency and potential for higher returns, which may not be fully recognized by the market [19][20] - The military and aerospace sectors are underlined as critical areas for investment, particularly in light of ongoing geopolitical tensions and domestic production initiatives [10][12]

Core Viewpoint - The Chinese waste incineration industry is experiencing a shift from a "garbage siege" to "oversupply," with many incineration plants facing insufficient waste supply due to overcapacity and changes in waste generation patterns [3][4][5]. Industry Changes - In the first half of 2025, a survey revealed that two-thirds of waste incineration plants are struggling with insufficient waste supply [3]. - The proportion of waste incineration in urban waste management has dramatically increased from 9.8% in 2005 to 82.5% in 2023, while landfill disposal has decreased from 85.2% to 7.5% [3]. - The average capacity utilization rate of domestic waste incineration projects is around 60%, indicating a significant portion of capacity is underutilized [4][7]. Reasons for Supply-Demand Imbalance - The overcapacity is attributed to two main factors: overly optimistic projections of future waste generation and the impact of waste classification, which has reduced the amount of combustible waste available for incineration [3][9]. - The construction of incineration plants has outpaced actual waste generation, leading to a mismatch between supply and demand [8][9]. Future Trends - Waste incineration plants are being urged to diversify their operations, such as providing steam and hot water or collaborating on sludge treatment, to adapt to the changing market [4][15]. - The industry is also looking to expand into international markets, with over 80 overseas waste incineration projects involving Chinese companies [4][8]. Financial Challenges - The revenue model for waste incineration plants relies heavily on government subsidies and waste disposal fees, with electricity sales accounting for about two-thirds of their income [14][15]. - Recent policy changes have led to a reduction in government subsidies, increasing the financial pressure on these plants and prompting them to seek higher waste disposal fees from local governments [15][17]. Market Dynamics - The shift in waste generation patterns, including the impact of the COVID-19 pandemic, has led to a notable decrease in waste supply, with some plants reporting utilization rates as low as 24% [8][9]. - The industry is facing increased operational costs due to the need to excavate previously landfilled waste to meet incineration capacity [11][12].

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].

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].