Sewage regeneration and waste incineration have received a number of policy support. 1. On January 24, the State Council issued the comprehensive work plan for energy conservation and emission reduction in the 14th five year plan. The plan proposes that by 2025, the energy consumption per unit of China’s GDP will be reduced by 13.5% compared with that in 2020, and the total energy consumption will be reasonably controlled; At the same time, 80000 kilometers of sewage collection pipe network will be added and reconstructed, with an additional sewage treatment capacity of 20 million m3 / day, the harmless disposal rate of urban sludge will reach 90%, and the incineration treatment capacity of urban domestic waste will reach about 800000 tons / day. The plan is expected to open up the demand space of the sewage treatment industry and benefit the leading enterprises of sewage treatment. 2. On January 24, the Ministry of housing and urban rural development issued the action plan for promoting the development of urban and rural construction in the Yangtze River economic belt during the 14th five year plan. The plan proposes to build a sewage and sludge treatment facility system around the metropolitan area and explore multiple ways of sludge treatment and recovery; Comprehensively promote waste incineration, moderately advance the construction of waste incineration treatment facilities, and benefit the head sewage treatment company and waste incineration project construction and operation company. In terms of sewage disposal, it is recommended to pay attention to 1) Hongcheng water industry with great potential in Jiangxi sewage market and attractive valuation and dividend rate; 2) World class membrane equipment manufacturer and supplier Beijing Originwater Technology Co.Ltd(300070) ; In the waste incineration sector, it is recommended to pay attention to 1) the Grandblue Environment Co.Ltd(600323) with steady growth and obvious valuation advantages; 2) Roe industry-leading Zhejiang Weiming Environment Protection Co.Ltd(603568) with sufficient orders.
The financing has recovered, the space is broad, and the value of environmental protection allocation is prominent. Since 2019, the interest rate has dropped, state-owned assets have taken ownership, and the debt financing of environmental protection enterprises has improved significantly. The new refinancing regulations have been issued to solve the difficulties of enterprise equity financing and eliminate the most important factor of suppressing PE in the sector. In 2019, the total amount of environmental protection special bonds was 54.6 billion yuan, with a total of 232.4 billion yuan in 2020 and 212.8 billion yuan as of October 29, 2021; Since 2020, the proportion of environmental protection special bonds has increased: in 2019, the proportion of environmental protection special bonds has increased to 2.5%, 6.3% in 2020, and further increased to 7.5% by October 29, 2021. The Fifth Plenary Session of the 19th CPC Central Committee unswervingly adheres to the construction of ecological civilization. The goal is to achieve new progress in the ecological environment during the 14th Five Year Plan period, achieve a fundamental improvement in the ecological environment by 2035, and the industry itself has broad growth space under the catalysis of the great protection of the Yangtze River and the Yellow River Basin and waste classification.
Valuation bottomed out, focusing on stable operating assets and companies with reversed fundamentals. Over the past three years, the performance of the environmental protection sector has been sluggish, and the valuation and positions are still low. The introduction of environmental protection REITs provides new equity financing tools. Pollution control operations such as urban sewage and waste treatment, solid waste and hazardous waste treatment are key industries. Enterprises with strong technical advantages and high wall barrier are favored. 1. Waste incineration companies with strong growth and certainty, Focus on Zhejiang Weiming Environment Protection Co.Ltd(603568) (ROE industry-leading and sufficient orders), Grandblue Environment Co.Ltd(600323) (steady growth and obvious valuation advantages); 2. Hazardous waste disposal companies with rich projects in hand, strong technology and high barriers pay attention to Zhefu Holding Group Co.Ltd(002266) (new leader of hazardous waste and layout of the whole industrial chain), Beijing Geoenviron Engineering & Technology Inc(603588) (leader of soil remediation benefiting from financing improvement); 3. Water companies whose value is expected to be revalued pay attention to Hongcheng water industry (Jiangxi sewage market has great potential, and the valuation and dividend rate are attractive).
Industry news: 1) the State Council issued the comprehensive work plan for energy conservation and emission reduction in the 14th five year plan; 2) The Ministry of housing and urban rural development issued the action plan for ecological protection and high-quality development of urban and rural construction in the Yellow River Basin during the 14th five year plan.
Plate Market Review: the environmental protection sector performed well this week, outperforming the market and the gem. Last week, the Shanghai Composite Index rose or fell by – 4.57%, the gem index rose by – 4.14%, and the environmental protection engineering and services (Shenwan) rose by – 3.83%, outperforming the Shanghai Composite Index by 0.74% and the gem by 0.31%; Public utilities rose by – 5.30%, underperformed the Shanghai Composite Index by – 0.73% and underperformed the gem by – 1.16%. Monitoring (- 5.19%), atmosphere (- 4.33%), water treatment (- 5.60), solid waste (- 4.52%), water operation (- 4.09%), energy saving (- 3.03%).
Risk tip: the environmental protection policy and supervision are less than expected, and the industry demand is less than expected.
