Core view
The sectors continue to fluctuate and the trend of subdivided sectors converges. Over the past year, the environmental protection sector has continued to fluctuate, and the trend of subdivided sectors has converged, keeping a lead over the Shanghai and Shenzhen 300. In the long run, in the future, we will focus on four aspects: environmental protection operation, integration of environment and energy industry, technological progress in the field of environmental protection and green assets. In the short term, we need to pay attention to the specific operation of enterprises under the impact of the epidemic and changes in the international situation on China's economy.
Solid waste sector: the demand is still strong, but we need to pay attention to the latest business situation and cash flow of the enterprise. The reduction of solid waste is a rigid demand. The industry is still booming and the demand is strong. However, since 2022, the epidemic situation has rebounded. At the same time, due to the intensification of foreign geographical conflicts, China's economic operation has been affected to a certain extent. The non operating businesses and some operating projects in the solid waste sector have been affected to a certain extent due to local payment capacity and the epidemic. In the future, we need to pay attention to the continuous impact of the epidemic situation, the international situation and China's economic situation on the business operation of enterprises.
Water sector: stable returns, cash flow changes caused by accounting policy adjustment. The demand of the water sector is strong, the revenue and profit continue to grow, and the gross profit of the sector is high. Under the steady growth policy, the investment in sewage treatment and water environment treatment is expected to increase. In the short term, the increase of construction business and the implementation of the interpretation of accounting standards for Business Enterprises No. 14 will have a certain impact on the cash flow of the industry. However, in the long run, after years of rapid development, the water supply and water treatment market has become saturated, the investment and construction business will be gradually reduced, the industry will enter the stock era, and the operation of stock projects will become the theme of the industry.
Information sector: stable income and high gross profit margin. Intelligent environmental protection with digitization and informatization as the carrier will run through the construction of carbon market and the operation of the whole industrial chain of "supervision control management service", deeply enabling carbon neutralization. Smart environmental protection is a high-quality track and is in the rapid growth period of the industry life cycle. Relevant companies will enjoy the dividends of the market outbreak. It should be noted that although smart environmental protection related enterprises are enjoying the dividends of market growth, the competition barriers are not deep, the competition pattern has not been formed, and the enterprise development still faces many uncertain factors. We need to pay attention to the specific operation status of the enterprise.
Investment suggestion: with the clarification of the action plan of carbon peak and the continuous promotion of the coordinated development of "pollution reduction and carbon reduction", the environmental protection industry will receive more and more attention in the future. In the long run, with the increasing proportion of operating projects, the industry has gradually entered an orderly, healthy and high-quality development stage, and the leading enterprises with strong fine management ability and outstanding operation ability will obviously benefit. In the short term, the epidemic and geographical conflicts will have a certain impact on China's economy, and the business activities of some enterprises will also have a negative impact. We give a "neutral" investment rating to the industry, focus on companies with good operation and relatively stable cash flow, and recommend Grandblue Environment Co.Ltd(600323) , Beijing Geoenviron Engineering & Technology Inc(603588) and other companies.
Risk factors: epidemic control is lower than expected; Geopolitical conflicts are worsening; The national compensation and return slope rate of solid waste projects exceeds the expectation; Support policies are lower than expected; The operating conditions of the company in the solid waste and water sector are lower than expected; The implementation of carbon neutralization policy is lower than expected.
