Cinda: Valuation of environmental protection sector continues to recover, three main themes worth paying attention to.

Cinda released a research report stating that investment in the environmental protection industry is gradually returning to rationality. While focusing on the sustainable development of core businesses and cost reduction, companies are also actively expanding into new fields such as new energy, AI+ environmental protection, Siasun Robot&Automation, to steadily develop amidst market policy adjustments and industry upheaval. Three major themes in the environmental protection sector are worth noting: water management & waste incineration operation assets are steadily profitable, with cash flow continuing to improve, combined with the marketization reform of public utilities, high-quality operating assets are expected to see double-digit growth. Second, environmental equipment, as the end of the "14th Five-Year Plan" approaches, industrial energy saving and consumption reduction continue to be promoted, with a broad outlook for data center cooling; in addition, carbon monitoring demand release is expected to drive the development of monitoring. Third, recycling, with broad development space. Key points from Cinda: Sector valuations continue to recover, water operation is stable, waste incineration dividends rise The environmental protection industry's investment is gradually returning to rationality, focusing on the sustainable development of core businesses and cost reduction, while also actively expanding into new fields such as new energy, AI+ environmental protection, Siasun Robot&Automation, to steadily develop amidst market policy adjustments and industry upheaval. According to Wind data, the 146 listed companies in the Cinda Energy Environmental Protection sector (including 16 water utilities, 36 water treatment companies, 8 air pollution control companies, 38 solid waste treatment companies, 9 environmental monitoring/detection companies, 13 comprehensive environmental treatment companies, and 26 environmental equipment companies) achieved a total operating income of 187.037 billion yuan in the first half of 2025, a year-on-year increase of 0.2%. Net profit attributable to shareholders was 16.953 billion yuan, a year-on-year decrease of 6.0%, mainly due to significant decreases in the net profits of Beijing SPC Environment Protection Tech, Guangxi Bossco Environmental Protection Technology, WELLE Environmental Group, Taihe Water, and Suzhou Shijing Environmental Technology. Water sector In the first half of 2025, the Cinda Energy Environmental Protection sector's 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 shareholders was 5.42 billion yuan, a year-on-year increase of 4.6%. On April 2nd, the Central Office and the State Office issued the "Opinions on Improving the Price Governance Mechanism", proposing to "strengthen enterprise cost constraints and income supervision, comprehensively evaluate cost changes... improve the dynamic adjustment mechanism of public utility prices". The bank believes that the issuance of the policy will further catalyze the marketization reform of water prices, bringing new growth opportunities for water companies, and companies with high water business ratios and operational efficiency are expected to benefit. Solid waste sector In the first half of 2025, the Cinda Energy Environmental Protection sector's 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 shareholders was 8.47 billion yuan, a year-on-year decrease of 3.4%. With the increase in dividends from waste incineration in the solid waste sector, companies actively going abroad and setting up data centers are expected to reshape their valuations. Environmental monitoring/detection sector In the first half of 2025, the Cinda Energy Environmental Protection sector's environmental monitoring/detection 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 shareholders was 162 million yuan, a year-on-year decrease of 41%. With the release of new carbon market policies, the participation of industries and entities is expected to expand, and with the continuous promotion of China's "dual carbon" goals and the gradual implementation of industry expansion, the demand for carbon monitoring is expected to increase. Environmental equipment sector In the first half of 2025, the Cinda Energy Environmental Protection sector's environmental equipment sector (26 listed companies) achieved revenue of 30.004 billion yuan, a year-on-year decrease of 3.69%; the total net profit attributable to shareholders was 1.917 billion yuan, a year-on-year decrease of 15%. 2025 is the end of the "14th Five-Year Plan". In the notification issued by the State Council on the "Action Plan for Energy Conservation and Carbon Reduction for 2024-2025", it was proposed to promote the renewal and upgrade of key energy-using equipment and accelerate the energy conservation and carbon reduction transformation of data centers. The bank believes that energy-saving cooling equipment is expected to see an increase in demand. Risk factors: Project progress falls short of expectations, debt-to-equity policy enforcement is less than expected, price reform progresses less than expected, and accounts receivable collection is not timely.