Guangfa Securities: Focus on high-performing stocks in the environmental protection sector for the third quarter report, reiterate dividends + domestic substitution

According to the Zhitong Finance APP, GF Securities has released a research report stating that as the third quarter report disclosure period begins, some companies in the environmental protection industry have announced their performance. With the reduction in orders for existing projects and newly signed projects in environmental protection companies, the required capital investment in the future is expected to decrease, and the expectation for continuous dividend increases is strengthened. As more companies release their third quarter reports, the firm suggests paying attention to solid waste and water companies that maintain stable growth in performance and continuous improvement in cash flow, as well as high-performing stocks in related fields such as bio-aviation fuel, recycling, scientific instruments, and semiconductors.

GF Securities' main viewpoints are as follows:

Domestic substitution is expected to accelerate in 2026, focus on independent and controllable scientific instruments

The General Office of the State Council recently issued a notice on implementing domestic product standards and related policies in government procurement, clearly stating that in government procurement activities where both domestic and non-domestic products compete, domestic products will be given price evaluation preferences according to law, with a 20% price deduction for domestic product quotations, which will participate in the evaluation at the deducted price. In the scientific instrument industry, government agencies (including but not limited to environmental monitoring units, customs, universities, hospitals, etc.) account for a high proportion of the downstream market. This notice, by providing a 20% price evaluation preference for domestic products, will effectively enhance the competitiveness of domestic products and accelerate the process of domestic substitution. Given the current uncertainties in international trade, domestic substitution and independent control remain important investment focus areas. It is recommended to pay attention to domestic scientific instrument companies such as FPI, Steel Research Institute, WanYi Technology, Labtech, and Xuedilong. With the implementation of this notice, the demand for government-side orders from domestic scientific instrument companies is expected to increase.

The logic of dividend increases is being realized, and the "stock era" dividend investment strategy becomes increasingly effective after 2022

As the expansion cycle of the environmental protection industry enters its final stage after more than twenty years, the solid waste, water, and air industries have gradually entered a mature stage. With the contraction of capital expenditure, the dividend ratio has shown a significant upward trend, especially in the solid waste industry, where the speed of capital expenditure contraction is relatively fast. In 2024, many solid waste companies will realize the logic of dividend increases: among 12 companies, 10 have achieved an increase in absolute dividend amounts, with 2 companies showing a year-on-year increase of 100%, and the average dividend ratio for the sector reaching 42% (up 10.6 percentage points year-on-year). Importantly, combined with the reduction in orders for existing projects and newly signed projects in environmental protection companies, the required capital investment in the future is expected to decrease, and the expectation for continuous dividend increases is strengthened. It is recommended to pay attention to GRANDBLUE ENV, Shanghai Industrial Holdings, Conch Venture, Everbright Environment, and Dynagreen.

Risk Warning

Low expectations for orders and new business layouts, policy change risks, low expectations for dividends