20140603-招商证券_香港_-Environmental_protection–_solid_waste_treatment_32页_1mb

报告摘要

Summary of the Document on Environmental Industry Investment

Core Content

The document outlines the promising future of the environmental industry in China, emphasizing the potential for growth and investment in specific sub-sectors such as solid waste management, waste-to-energy, and hazardous waste treatment. It highlights the country's current position in the environmental industry, the factors driving its development, and the investment opportunities that are emerging as a result of policy support and increasing awareness of environmental issues.

Main Viewpoints

Environmental Industry Growth: The environmental industry in China is entering a "golden decade" of growth, with the potential for continued prosperity over the next 5 to 10 years. The industry is in the infrastructure development stage, which typically lasts 10 to 15 years, and is expected to see the emergence of companies with capitalization exceeding RMB100 billion.
Investment Potential: China's environmental investment currently accounts for approximately 1.6% of GDP, significantly lower than the 2.5% in developed countries. This gap indicates substantial room for growth, especially in solid waste treatment, which is expected to grow at a CAGR of 39% during the "Twelfth Five-Year Plan" period.
Solid Waste Management: Solid waste treatment is the largest sub-industry within the environmental sector, with global market size reaching RMB254 billion in 2010. In China, the investment in solid waste management is expected to reach RMB700 billion during the Twelfth Five-Year Plan, driven by the increasing recognition of hidden pollution and the need for better waste treatment.
Waste-to-Energy Industry: Incineration is gradually replacing landfill as the preferred method for treating household waste. The proportion of incineration in household waste treatment is expected to rise from 20% in 2010 to 35% in 2015. Garbage incineration treatment capacity is projected to grow at a CAGR of 23%, outpacing the overall growth of the waste treatment industry.
Hazardous Waste Treatment: The treatment capacity of hazardous waste is expected to increase significantly, reaching 30 million tonnes by 2015. The government's stricter regulations and the rising costs of treatment are pushing companies to adopt legal channels for hazardous waste management. The detoxification market alone is projected to reach RMB45 billion by 2015.
Investment Trends: The Twelfth Five-Year Plan period is expected to see environmental investment reach RMB3.1 trillion, with solid waste treatment being the fastest-growing segment. The investment in solid waste during this period will be around RMB700 billion, a CAGR of 39%, which is higher than the growth in water and air pollution control.
Regional Focus and Market Structure: The environmental industry in China is still in its early stages, with most companies being regional and lacking the nationwide and global presence of their overseas counterparts. However, the growth potential is vast, especially in the solid waste and waste-to-energy sectors.

Key Information

Investment in Solid Waste Treatment: Expected to reach RMB700 billion during the "Twelfth Five-Year Plan" period, growing at a CAGR of 39%.
Hazardous Waste Treatment: Projected to grow from 20% of generation in 2010 to 50% in 2015, with treatment capacity reaching 30 million tonnes.
Waste-to-Energy Growth: Incineration is becoming the mainstream method for treating household waste, with treatment capacity expected to increase by 11% CAGR during the Twelfth Five-Year Plan.
Government Policies: The government is playing a crucial role in driving the environmental industry, with increased investment, stricter regulations, and incentives for waste-to-energy projects.
Market Outlook: The document recommends investing in sub-sectors such as garbage incineration, hazardous waste treatment, and resource recovery, citing strong growth potential and favorable policy environments.

Investment Recommendations

Dongjiang Environmental (BUY, TP: HK$38.70, upside potential: 38%): A leader in hazardous waste treatment, with expected treatment capacity growth of 48% CAGR from 2013 to 2016 and a profit growth of 34% CAGR. The company is currently undervalued at 18.3x 2014E PE compared to the sector mean of 34x.
China Everbright (BUY, TP: HK$11.60, upside potential: 21%): A leader in waste-to-energy, with a low average cost of finance (4.6%), high gross margin (over 40%), and rapid capacity growth (51% and 41% in 2014/15). The company is expected to maintain a net profit growth rate of 22% from 2013 to 2016.

Industry Development Stage

China's environmental industry is currently in the environmental infrastructure development stage, which is characterized by rapid growth in infrastructure investment. This stage is expected to last for 10 to 15 years, similar to the U.S. experience from 1970 to 1985.

Market Potential and Challenges

Land Constraints: With rising land prices and urbanization, landfill is becoming less viable, especially in the Eastern and Central regions. Incineration is seen as a more efficient and cost-effective solution, requiring less land and offering better resource recovery.
Low Utilization Rates: Many types of industrial solid waste have low utilization rates, indicating a need for better treatment technologies and policies.
Policy Support: The government's increasing focus on environmental protection and the establishment of more stringent regulations are driving the growth of the industry and creating favorable conditions for investment.

Conclusion

The environmental industry in China is poised for significant growth over the next decade, with solid waste treatment, waste-to-energy, and hazardous waste treatment being the most promising sub-sectors. The combination of policy support, increasing investment, and technological advancements is expected to create a boom in the industry, offering substantial opportunities for companies that are well-positioned to capitalize on these trends.

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