Cinda Securities: Environmental Protection Sector Valuation Continues to Recover, Three Main Lines Worth Attention

According to the Zhitong Finance APP, Xinda Securities released a research report stating that investment in the environmental protection industry is gradually returning to rationality. While focusing on the continuous development of its core business and cost reduction and efficiency enhancement, it is also actively crossing over and laying out in popular tracks such as new energy, AI + environmental protection, and robotics, in order to achieve steady development amid market policy adjustments and industrial turbulence. Three main lines in the environmental protection sector are worth paying attention to: first, water and waste incineration operation assets, which have stable and rising profits, continuous improvement in cash flow, and with the market-oriented reform of public utilities, high-quality operating assets are expected to welcome a double boost. Second, environmental protection equipment, as the final year of the 14th Five-Year Plan, industrial energy conservation and consumption reduction continue to advance, and the cooling prospects for data centers are broad; in addition, the release of carbon monitoring demand is expected to drive the development of the monitoring field. Third, recycling and regeneration, which has broad development space.

The main views of Xinda Securities are as follows:

Sector valuation continues to recover, water operations are stable, and waste incineration dividends are increasing

Investment in the environmental protection industry is gradually returning to rationality, focusing on the continuous development of its core business and cost reduction and efficiency enhancement, while also actively crossing over and laying out in popular tracks such as new energy, AI + environmental protection, and robotics, in order to achieve steady development amid market policy adjustments and industrial turbulence. According to Wind data, Xinda Energy's environmental protection sector, which includes 146 listed companies (16 in water, 36 in water treatment, 8 in air governance, 38 in solid waste treatment, 9 in environmental monitoring/testing, 13 in comprehensive environmental governance, and 26 in environmental protection equipment), achieved a total operating income of 187.037 billion yuan in the first half of 2025, a year-on-year increase of 0.2%; the net profit attributable to the parent company was 16.953 billion yuan, a year-on-year decrease of 6.0%, mainly due to a significant decrease in net profit attributable to the parent company from Qingxin Environment, Bossco, WELL.E, Taihe Water, and Shijing Technology.

Water Sector

In the first half of 2025, Xinda Energy's environmental protection sub-sector water sector (16 listed companies) achieved revenue of 34.353 billion yuan, a year-on-year decrease of 0.9%; the total net profit attributable to the parent company was 5.42 billion yuan, a year-on-year increase of 4.6%. On April 2, the General Office of the Central Committee and the General Office of the State Council issued the "Opinions on Improving the Price Governance Mechanism," proposing to "strengthen enterprise cost constraints and revenue supervision, comprehensively assess cost changes... and improve the dynamic adjustment mechanism for public utility prices." The bank believes that the introduction of this policy will further catalyze the market-oriented reform of water prices, which is expected to bring new growth opportunities for water companies, especially those with a high proportion of water business and efficient operations.

Solid Waste Sector

In the first half of 2025, Xinda Energy's environmental protection sub-sector solid waste treatment sector (38 listed companies) achieved revenue of 86.533 billion yuan, a year-on-year increase of 3.4%; the total net profit attributable to the parent company was 8.47 billion yuan, a year-on-year decrease of 3.4%. In the solid waste sector, the increase in dividends from waste incineration and companies actively going overseas and laying out data centers are expected to bring about a revaluation.

Environmental Monitoring/Testing Sector

In the first half of 2025, Xinda Energy's environmental protection sub-sector environmental monitoring/testing sector (9 listed companies) achieved revenue of 4.308 billion yuan, a year-on-year decrease of 4.4%; the total net profit attributable to the parent company was 162 million yuan, a year-on-year decrease of 41%. With the new carbon market policy being introduced, the participating industries and entities are expected to expand. Along with the continuous advancement of China's "dual carbon" goals and the gradual implementation of industry expansion, it is expected to drive the release of demand in the carbon monitoring industry Environmental Equipment Sector

In the first half of 2025, the environmental equipment sector of Xinda Energy (comprising 26 listed companies) achieved revenue of 30.004 billion yuan, a year-on-year decrease of 3.69%; the net profit attributable to shareholders totaled 1.917 billion yuan, a year-on-year decrease of 15%. The year 2025 marks the end of the "14th Five-Year Plan." In the notice issued by the State Council regarding the "2024-2025 Energy Conservation and Carbon Reduction Action Plan," it was proposed to promote the upgrading and renewal of key energy-consuming equipment and accelerate the energy-saving and carbon reduction transformation of data centers. The bank believes that energy-saving cooling equipment is expected to see a rise in demand.

Risk Factors: Project advancement is not as expected, the implementation of debt reduction policies is weaker than anticipated, price reforms are progressing slower than expected, and accounts receivable are not being collected in a timely manner