Sewage treatment ushered in a number of policy support. 1. On January 11, the national development and Reform Commission issued the plan for comprehensive treatment of water environment in key river basins in the 14th five year plan. The plan proposes that by 2025, a relatively complete urban water pollution prevention and control system will be basically formed, and the centralized collection rate of urban domestic sewage will reach more than 70%; Strengthen the construction of sewage treatment projects and effectively improve the sewage reduction capacity; Strengthen the transformation of sewage treatment facilities and improve the utilization level and efficiency of water resources. 2. On January 11, the national development and Reform Commission and the Ministry of water resources issued the water security plan for the 14th five year plan. The plan proposes that by 2025, the ability to prevent flood and drought disasters, the ability to save, intensively and safely use water resources, the ability to optimize the allocation of water resources, the ability to protect and control rivers and lakes will be further strengthened, and the national water security guarantee ability will be significantly improved. At the same time, the plan points out that sewage regeneration and recycling has become a key development direction and an important part of China’s water security; Encourage the construction of sewage treatment projects and the transformation of existing sewage treatment projects, orderly promote the use of renewable water resources, which is expected to open the demand space for sewage treatment projects, and benefit the head sewage treatment enterprises. It is recommended to pay attention to Hongcheng water industry with great potential in Jiangxi sewage market and attractive valuation and dividend rate.
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, in 2020, it was 232.4 billion, and by October 29, 2021, it was 212.8 billion yuan; 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 the key driving industries. They are optimistic about enterprises with strong technical advantages and high wall. 1. Waste incineration companies with strong growth and certainty, Focus on Zhejiang Weiming Environment Protection Co.Ltd(603568) (ROE industry-leading, 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. The 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 national development and Reform Commission issued the comprehensive treatment plan for water environment of key river basins in the 14th five year plan; 2) The national development and Reform Commission and the Ministry of water resources issued the special management measures for investment in the central budget of national water network backbone projects; 3) The national development and Reform Commission and the State Forestry and grass Administration issued the action plan for ecological protection and economic transformation of Daxing’anling Forest Area in the 14th five year plan.
Plate Market Review: the environmental protection sector performed poorly this week, losing the market and the gem. Last week, the Shanghai Composite Index rose by – 1.63%, the gem index rose by 0.73%, the environmental protection engineering and services (Shenwan) rose by – 2.46%, underperforming the Shanghai Composite Index by 0.83%, underperforming the gem by 3.19%; Public utilities rose by – 1.57%, outperforming the Shanghai Composite Index by 0.06% and underperforming the gem by – 2.30%. Monitoring (- 2.48%), atmosphere (- 2.54%), water treatment (- 2.85%), solid waste (- 2.87%), water operation (- 1.40%), energy saving (- 1.89%).
Risk tip: the environmental protection policy and supervision are less than expected, and the industry demand is less than expected.
