Soochow: There is a broad overseas market space for waste incineration, and the logic of ROE uplift in the sector continues to be realized.

Soochow has released a research report stating that the daily waste production in the markets of the 10 ASEAN countries and India reaches 1.46 million tons/day. There is vast overseas market space, with an estimated investment space of around 250 billion yuan for waste incineration in the ASEAN ten countries and India. The waste incineration sector continues to realize its ROE logic, with promising prospects for new growth in overseas markets. 1) New growth in overseas markets: There is ample space for waste incineration projects overseas, with overseas projects benefiting from high electricity prices and processing fees. Indonesia's policy is pushing forward a shift in business models towards single electricity revenue, with significant increases in ton income if cost control is managed well. 2) Increased dividends and ROE realization. The key points of Soochow are as follows: Vast overseas market space, with an estimated investment space of around 250 billion yuan for waste incineration in the ASEAN ten countries and India. The bank's calculation based on the population in 2024 estimates that the daily waste production in the markets of the 10 ASEAN countries and India reaches 1.46 million tons/day. Assuming a waste incineration penetration rate of 50% in each country (Singapore has a high recycling system, assuming a 40% incineration rate), the ASEAN ten countries and India still have a waste incineration space of 496,900 tons/day. With cautious estimation of 500,000 yuan investment per ton, the investment space reaches 248.5 billion yuan. Domestic waste incineration companies have projects in Southeast Asia, Central Asia, etc., with Kangheng Environment, China Tianying Inc., Hunan Junxin Environmental Protection, and EB Environment being leaders in overseas operations, and Chongqing Sanfeng Environment Group Corp., with extensive experience in equipment and EPC for overseas projects. Calculation of income for overseas vs. domestic projects Higher processing fees/high electricity prices drive significant increases in income per ton for overseas projects. Assuming that each project operates for 330 days a year, the electricity generated per ton of waste is 320 kWh in China, 410 kWh in Kyrgyzstan, 370 kWh in Vietnam, and 410 kWh in Indonesia. The bank's calculation for a project in China processing 1000 tons of waste per day results in an income of 268 yuan per ton, while projects in Kyrgyzstan, Vietnam, and Indonesia generate incomes of 324 yuan, 413 yuan, and 582 yuan per ton, respectively, with income increases of 21%, 54%, and 117%. This is mainly driven by the high processing fees and high electricity prices of overseas projects. Indonesia optimizes the business model by unifying revenue sources and upgrading the credit rating of the paying entities. 1) Policy upgrade: Transition from local leadership to national leadership, with funds shifting from local budgets to national budgets. 2) Business model transformation: Cancelling local government-led waste processing fee subsidies and signing 30-year fixed electricity prices with national power companies at $0.20 per kWh. 3) Expansion: Planning to build 33 waste incineration power plants nationwide, with a total investment of approximately $5.6 billion, each processing around 1000 tons/day. 4) Rapid progress: The Indonesian Sovereign Fund initiated the first batch of waste-to-energy projects in November 2025, covering 7 regions, with all approval processes going through a "green channel." Significant increase in income per ton for Indonesian projects, with the premium on high electricity prices being realized. Calculation of economic viability of domestic vs. old Indonesian vs. new Indonesian projects under the following assumptions: 1) Basic assumptions: 1000 tons/day for each project, operating for 330 days a year, capital ratio of 30%, loan ratio of 70%, depreciation and amortization period of 28 years, electricity generation per ton of waste of 320 kWh in China and 410 kWh in Indonesia. 2) Investment cost assumptions: Single ton investment of 500,000 yuan for domestic projects and 1 million yuan for Indonesian projects. 3) Financing cost assumptions: Loan interest rate of 3% for domestic projects and 4% for Indonesian projects. 4) Operating cost assumptions: Operating costs for domestic projects are 43 million yuan, with a management and other expenses rate of 7%; for Indonesian projects, operating costs are about 30% higher (excluding depreciation and amortization), with management and other expenses about 30% higher than in domestic projects. Indonesian project profitability is significantly affected by cost control. 1) Investment cost: If the investment per ton is reduced from 1 million to 700,000 yuan, ROE will increase significantly from 17.04% to 31.44%. 2) Financing cost: For every 1% decrease in loan interest rate, ROE will increase by 1.82%. If loan interest rates are 7%, 6%, 5%, and 4%, the corresponding net profit per ton will be 105, 122, 138, and 155 yuan, with project ROE of 11.58%, 13.40%, 15.22%, and 17.04%. 3) Operating costs: If operating costs and management and other expenses for Indonesian projects are brought in line with domestic levels, ROE will increase by 2.39% to 19.43%. If operating costs and management and other expenses are 0%, 30%, and 50% higher than those in domestic projects, the corresponding net profit per ton will be 177, 155, and 140 yuan, with project ROE of 19.43%, 17.04%, and 15.44%. Risk warning: Risks of changes in overseas policies, intensified competition in overseas markets, and changes in tax policies.