The “incineration +” growth engine was upgraded, and new energy and recycling opened the second growth curve. Previously, most of our definitions of “incineration +” were solid waste enterprises relying on waste incineration projects to horizontally layout the industrial park mode of domestic waste / sanitation / hazardous waste / industrial waste and solid waste integration. With the continuous excavation of the resource endowment of leading enterprises and the financial support provided by the stable hematopoietic capacity of waste incineration projects, emerging tracks with excellent business models and broad growth space such as new energy and recycling have become the main direction of the layout of solid waste enterprises: (1) Wangneng Environment Co.Ltd(002034) relying on the group’s waste vehicle disassembly capacity to layout the power battery recycling industry; (2) Shengyuan Environmental Protection Co.Ltd(300867) relying on its own projects and customer resources in Fujian, cooperate with the Three Gorges to layout Fujian offshore wind power; (3) Zhejiang Weiming Environment Protection Co.Ltd(603568) relying on the resources of the group, Indonesia’s high matte nickel business is arranged.
The profitability of solid waste business is outstanding, providing stable cash flow of 1 ~ 2 billion / year for a long time. At present, waste incineration enterprises are in the sprint period of production capacity and large volume. In the foreseeable two to three years, on the one hand, the performance growth rate of leading enterprises is still expected to maintain 20%, on the other hand, the cash flow of the sector is expected to continue to improve under the contraction of capital expenditure. In 2020, the net inflow of operating cash flow of A-share waste incineration leading enterprises has reached 950 ~ 1.96 billion yuan. As the major year of industrial production capacity in 2020 and 2021 (the total operating capacity of leading enterprises increased by 19.4% and 31.7% year-on-year), combined with the capacity climbing period of one to two years, the hematopoietic capacity of solid waste enterprises in the subsequent stable stage is more considerable. The net operating cash inflow of 1-2 billion / year is expected to provide sufficient capital guarantee for the expansion of emerging businesses and drive the revaluation of the company’s overall valuation.
The valuation system of stock assets needs to be reconstructed, and the second curve opens the flexibility of performance and valuation. At present, the market still adopts PE valuation and pricing for waste incineration operation assets, which is linked to growth. However, considering the slow growth of the industry and the large volume of stock assets, the high net cash ratio of 1.5 ~ 2.0 superimposed sectors (enterprises earn 1 unit of profit and 1.5 ~ 2.0 unit of net cash flow from operating activities in essence), the absolute valuation of DCF can better reflect the asset quality (refer to the listing of waste incineration REITs assets priced by DCF, which has increased by 30% so far). It is expected that with the subsequent opening of the second growth curve, the sector under segment valuation (DCF valuation for waste incineration and PE valuation for emerging businesses) will be more flexible.
It is suggested to pay attention to: private target enterprises with emerging business layout and state-owned enterprises with prominent advantages of Industrial Park integration. On the one hand, private enterprises with more active changes and more flexible business transformation have started the second curve layout, focusing on Wangneng Environment Co.Ltd(002034) (power battery recycling), Shengyuan Environmental Protection Co.Ltd(300867) (offshore wind power), Zhejiang Weiming Environment Protection Co.Ltd(603568) (high nickel matte), etc; On the other hand, state-owned enterprises with more competitive advantages in the traditional municipal field are expected to rely on the integrated layout of industrial parks to ensure growth, and also have the potential of emerging business layout. It is suggested to pay attention to Grandblue Environment Co.Ltd(600323) , Chongqing Sanfeng Environment Group Corp.Ltd(601827) , Dynagreen Environmental Protection Group Co.Ltd(601330) , etc.
Risk warning. The production capacity and “incineration +” expansion progress are less than expected; Risk of policy changes.
