Investment Rating - The report maintains an "Overweight" rating for the environmental protection industry [1] Core Insights - The Ministry of Ecology and Environment held a press conference on "High-Quality Completion of the 14th Five-Year Plan," indicating ongoing progress in the "dual carbon" policy [1] - Solid waste management and water governance policies are expected to strengthen the fundamentals of hazardous waste and water-related companies [13] - The demand for environmental monitoring equipment is anticipated to continue growing due to the ongoing "dual carbon" policy [13] Summary by Sections Industry Trends - Since the beginning of the 14th Five-Year Plan, the capacity for hazardous waste utilization and disposal has increased by 58.8%, and the capacity for municipal solid waste incineration has increased by 72.4% compared to the end of the 13th Five-Year Plan [10] - Over 3000 solid waste management projects have been implemented across 113 cities, with an investment of approximately 560 billion yuan [10] Solid Waste Management - The solid waste sector has seen a significant improvement in cash flow and dividend payouts, with a focus on operational efficiency and cost reduction [14] - The average revenue growth for the solid waste sector was 1%, with net profit increasing by 8% in the first half of 2025 [14] Water Management - The water sector is expected to experience a cash flow turnaround similar to that of the waste incineration sector, with a projected increase in free cash flow starting in 2026 [18] - Water pricing reforms are being implemented in cities like Guangzhou and Shenzhen, which may lead to a new round of price adjustments [18] Sanitation Equipment - The penetration rate of electric sanitation vehicles increased by 6.53 percentage points to 16.71% in the first eight months of 2025, with sales of electric sanitation vehicles rising by 69.34% year-on-year [22] - The total sales of sanitation vehicles reached 49,577 units, reflecting a year-on-year increase of 3.2% [22] Bio-Diesel - The average price of waste cooking oil increased to 6,713 yuan per ton, while the average price of biodiesel remained stable at 8,400 yuan per ton, resulting in a decrease in profit margins [34] Lithium Battery Recycling - The prices of metals and discounts on ternary battery materials have increased, leading to improved profitability in lithium battery recycling [39]

Investment Rating - The report maintains an "Accumulate" rating for the environmental protection industry [1] Core Views - The logic of improving solid waste quality and efficiency, along with cash flow enhancement, continues to be realized, while the construction of the national carbon market is strengthened and carbon constraints are tightening [1] - The report highlights the importance of cash flow improvements and dividend increases in the waste incineration sector, driven by reduced capital expenditures and enhanced operational efficiency [39] Summary by Sections Industry Trends - The environmental protection industry is experiencing a stable revenue growth, with the waste incineration sector's revenue reaching 23.2 billion yuan, a 1% increase year-on-year, and net profit of 5.1 billion yuan, an 8% increase year-on-year [10][13] - The report emphasizes the need for a market-oriented approach in water services, predicting significant cash flow improvements similar to those seen in the waste incineration sector [7] Policy Tracking - The central government has issued guidelines to strengthen the national carbon market, aiming for a more comprehensive coverage of industrial sectors and a robust carbon pricing mechanism by 2030 [35][36] - The report suggests that stricter carbon monitoring will increase demand for carbon monitoring equipment, benefiting companies like Snowy Dragon and Juguang Technology [38] Company Performance - **Huanlan Environment**: Achieved a net profit of 966 million yuan in H1 2025, a 28% increase year-on-year, with a significant contribution from its subsidiary [29] - **Green Power**: Reported a 24% increase in net profit in H1 2025, driven by increased waste incineration and operational efficiency [31] - **Haihua Entrepreneurship**: Experienced a 9.33% increase in net profit, with a focus on stable growth in waste disposal and energy generation [31] - **Yongxing Co.**: Increased its waste processing volume, leading to a 9% rise in net profit [32] Cash Flow and Dividends - The waste incineration sector is seeing a significant increase in free cash flow, with projections indicating potential dividend payouts reaching 50% to 150% in the coming years [40][41] - The report notes that companies are beginning to distribute dividends more actively, with Huanlan Environment initiating its first mid-year dividend [24][29]

Investment Rating - The investment rating for the company is "Buy" [2] Core Views - The company is a leading player in the solid waste treatment industry, focusing on expanding its operations both domestically and internationally, while also exploring synergies with data centers [4][9] - The company has a strong operational foundation with a significant increase in revenue and net profit in Q1 2025, indicating a positive trend despite previous years of decline [4][16] - The company is actively pursuing innovative business models, including collaborations with data centers and international project expansions, which are expected to drive future growth [4][7] Summary by Sections Company Overview - The company, Wangen Environment, has been deeply involved in the solid waste industry for nearly two decades, with a focus on garbage incineration and kitchen waste treatment [4][9] - As of Q1 2025, the company has an operational garbage incineration capacity of 21,820 tons/day and kitchen waste capacity of 2,810 tons/day, primarily concentrated in Zhejiang Province [4][34] Financial Performance - The company experienced a revenue decline in 2023-2024 due to reduced BOT project construction income and losses in the recycling segment, but it achieved a revenue growth of 11.1% and a net profit growth of 10.62% in Q1 2025 [4][16] - The operational business (garbage incineration and kitchen waste treatment) contributed over 80% of total revenue and 104% of gross profit, highlighting its stable operational attributes [4][20] Profitability and Margins - The company's garbage incineration business has a gross margin of 48% in 2024, which is above the industry average of 43.4%, attributed to high capacity utilization and operational efficiency [4][40] - The company maintains a capacity utilization rate of around 120%, which is among the highest in the industry, supporting its profitability [4][40] Strategic Initiatives - The company is exploring a new model that combines garbage incineration with data centers, having completed the approval for the "Zero Carbon Intelligent Computing Center" in Huzhou [4][7] - The company has signed a contract with the Vietnamese government to build a 600 tons/day waste treatment project, marking a significant step in its international expansion strategy [4][7] Future Projections - Revenue projections for 2025-2027 are estimated at 3.239 billion, 3.406 billion, and 3.631 billion yuan, with corresponding net profits of 694 million, 760 million, and 809 million yuan [4][6]

Investment Rating - The report maintains an "Overweight" rating for the environmental protection industry [1] Core Insights - The expansion of the CCER (China Certified Emission Reduction) market is expected to benefit agricultural and forestry biomass, while the EU's Circular Economy Act emphasizes the importance of recycling resources [1][10] - The report highlights the potential for increased cash flow and profitability in the waste-to-energy sector as capital expenditures decline, similar to trends observed in the waste incineration industry [19][23] - The report suggests that the water services sector is approaching a cash flow inflection point, positioning it as the next growth area akin to waste incineration [23][24] Summary by Sections CCER Methodology and Market Expansion - The third batch of CCER methodologies focuses on agricultural biomass and methane reduction from oil and gas, indicating a growing supply and demand in the carbon market [8][10] - The average price of CCER has been reported at 89 RMB/ton, showing a premium over carbon allowances, reflecting tight supply conditions [10][12] EU Circular Economy Act - The EU is seeking public opinion on the Circular Economy Act, which aims to enhance the value of recycled materials and impose stricter regulations on waste management and recycling [15][16] - Key objectives include improving electronic waste collection and recycling rates, and extending producer responsibility for product lifecycle management [16][18] Waste-to-Energy Sector - The report notes a significant improvement in free cash flow for waste-to-energy companies as capital expenditures decrease, with projected dividend increases for major players [20][21] - The sector is expected to see a shift towards higher dividends and improved return on equity (ROE) as companies optimize operations and reduce costs [21][22] Water Services Sector - The water services market is anticipated to experience a cash flow boost as capital expenditures decline, with companies like Xingrong Environment and Yuehai Investment highlighted for their strong dividend potential [23][25] - The report emphasizes the importance of water pricing reforms in ensuring sustainable growth and returns for water service providers [24][25] Key Recommendations - The report recommends focusing on companies such as Guangda Environment, Xingrong Environment, and Green Power for their strong market positions and growth potential in the environmental sector [1][19][25]