Based on the current revenue growth rate, the receivables issue in the eco-friendly concept industry for the first three quarters of 2024 is still deteriorating, with a large volume of receivables related to municipal public utilities. Attention should be paid to the environmental protection industry valuation repair space brought by the implementation of debt conversion policies.
According to the financial news app, Haitong Securities released a research report stating that the revenue of the eco-friendly concept industry for the first three quarters of 2024 is basically flat year-on-year, with a net income decrease of 8% year-on-year, and a cash flow increase of 10% year-on-year for the first three quarters. Year-on-year eco-friendly industry operating income for the first three quarters of 2024 decreased by 0.1% to 331.4 billion yuan, and net profit attributable to the parent decreased by 8% to 26.2 billion yuan. The gross margin of 27% remains the same as in 2023, with the median ROE decreasing by 0.4 percentage points to 4.84%, a decrease of 0.08 billion yuan in asset impairment losses year-on-year, and a 10% increase in net cash flow from operating activities year-on-year. Based on the current revenue growth rate, the receivables issue in the eco-friendly concept industry for the first three quarters of 2024 is still deteriorating, with a large volume of receivables related to municipal public utilities. Attention should be paid to the environmental protection industry valuation repair space brought by the implementation of debt conversion policies.
The main points of Haitong Securities are as follows:
With the expansion of the carbon market imminent, key industries are accelerating energy conservation and carbon reduction.
On September 9, the General Office of the Ministry of Ecology and Environment issued a letter soliciting opinions on the 'Work Plan for Covering the National Carbon Emissions Trading Market for the Cement, Steel, and Aluminum Electrolysis Industries (Draft for Soliciting Opinions)'. The consultation draft outlines the work related to the integration of the cement, steel, and aluminum electrolysis industries into the national carbon emissions trading market in two phases, achieving a proactive, steady, and orderly expansion of the coverage of the national carbon emissions trading market, focusing on refining the carbon pricing mechanism around the national carbon emissions trading market, optimizing carbon emission reduction resource allocation, and reducing the overall social cost of carbon emission reduction.
Industry receipts are expected to improve, and the balance sheet is set to recover.
On October 18, the General Office of the State Council issued the 'Opinions on Resolving the Issue of Overdue Payments to Enterprises,' providing a systematic deployment for promoting the resolution of the problem of overdue payments to enterprises. The 'Opinions' require the improvement of the legal and regulatory system and judicial mechanisms for clearing overdue payments to enterprises. They also call for strengthened government investment project and project fund supervision, regular checks on the status of fund allocation, improvement of the engineering payment settlement system, and enhanced government procurement payment supervision.
Debt restructuring alleviates the dilemma of receivables, and the high dividends in the water affairs sector still have value.
In the first three quarters of 2024, the revenue of the water affairs sector decreased by 3% to 63.6 billion yuan, net income increased by 9% to 10.7 billion yuan, and accounts receivable increased by 20% to 67 billion yuan, accounting for 40% of the total accounts receivable in the environmental protection industry. Haitong Securities believes that with the continuous advancement of debt restructuring policies, it is hoped to effectively improve the current collection problem. This will not only reduce the profit rate decline caused by credit impairment losses in the income statement but also further improve the sector's cash flow to maintain a high dividend proportion in water affairs, make up for the original high dividend logic defects, and further drive the sector's valuation. Recommended attention to: Jiangxi Hongcheng Environment, BJ Ent Water.
Marginal improvement in renewable resources, loose macroeconomic environment combined with national leadership will realize performance recovery.
In the first three quarters of 2024, the revenue of the resource utilization sector increased by 13% to 114.7 billion yuan, net income increased by 31% to 3.1 billion yuan, operating cash flow decreased by 23% year-on-year to 2 billion yuan, and capital expenditures increased by 71% to 12.4 billion yuan. Haitong Securities believes that in the medium to long term, influenced by external loose macroeconomic policies, the performance of the resource utilization sector is expected to continue to improve. At the same time, with the increasing attention from the country to the recycling industry of renewable resources, the recent construction of China's Resource Recycling Group promotes industrial scaling, clustering, and standardization, driving healthy development of other peer companies in the industry. Recommended attention to: Jiangsu Huahong Technology, Qingdao Huicheng Environmental Technology Group, Dadi Ocean, Miracle Automation Engineering, Wangneng Environment, Dongjiang Environmental.
Improvement in the external environment, equipment is expected to recover.
In the first three quarters of 2024, the major listed companies in the special equipment industry saw a year-on-year revenue increase of 26% to 5.8 billion yuan, and a year-on-year net profit attributable to the parent company decrease of 11% to 0.35 billion yuan. Looking at the policies promoted during Trump's previous term, measures were taken to restrict China's access to high-end technological products, thereby promoting rapid development in China's semiconductor and other high-end fields. Haitong Securities believes that with strong policy support, continuous research and development investment in the semiconductor field, semiconductor-related equipment companies are entering a new stage of development. Recommended attention to: Meik Technology, Qingdao Guolin Technology Group.
Investment advice: Haitong Securities believes that in order to promote the transformation from dual control of energy consumption to dual control of carbon emissions, a wide range of green and low-carbon demonstration projects are expected to be fully implemented. Coupled with the acceleration of carbon market construction, it will inject vitality into the environmental protection industry. Currently, the industry is at a low valuation. If local debt issues are alleviated, both the industry's balance sheet and cash flow statement are expected to recover. Recommended attention to:
1) Continued landing of green and low-carbon policies and order releases: Wuxi Huaguang Environment & Energy Group (600475.SH) (electrolyzer + thermal power flexibility transformation), Shuangliang Eco-Energy Systems (600481.SH) (electrolyzer), Qingdao Huicheng Environmental Technology Group (688501.SH) (thermal power flexibility transformation), Gem Co.,Ltd. (002340.SZ) (power battery recycling), Beijing Geoenviron Engineering & Technology, Inc. (603588.SH) (metal resource utilization), Jiangsu Huahong Technology (002645.SZ) (metal resource utilization), Beijing SDL Technology (002658.SZ) (carbon monitoring), Ruicheng Environmental Protection (301273.SZ) (energy-saving equipment).
2) Dividends in the water affairs industry: Jiangxi Hongcheng Environment (600461.SH), BJ Ent Water Group (00371).
Risk Warning: Industry recovery falling below expectations, policy implementation below expectations, and demand release falling below expectations.
