The Zhitong Finance App learned that Orient Securities released a research report stating that green license transactions and cogeneration have opened new sources, and the profit level of waste incineration remains at a high level. Although affected by the adjustment of the subsidy policy, waste incineration projects have maintained relatively strong profitability, driven by green license transactions and open sources of cogeneration. Coupled with new market space becoming saturated, capital expenditure intensity is expected to decrease, making waste incineration companies have strong dividend capacity and willingness, and expectations are relatively stable. In the current macro context of declining overall return on investment, a high-dividend label strategy is expected to provide a relatively stable dividend cash flow.

Orient Securities's views are as follows:

The waste incineration market is becoming saturated, competition is intensifying, and enterprises are diversifying.

Waste incineration power generation is a basic livelihood industry. Demand is stable, sensitivity to economic cycle fluctuations is relatively low, and profitability is less affected by fluctuations in the prices of energy and basic means of production. With the rapid development of the industry, the proportion of urban waste incineration in harmless treatment volume exceeded 50% for the first time in 2020, and reached 75% by 2022. China's urban domestic waste incineration treatment capacity is becoming increasingly saturated, and there is limited room for new markets. Judging from the bidding data, the number of new waste incineration projects that won bids decreased year by year in 2019-2023. The scale of new tenders won in 2019-2023 was 12.7, 7.4, 5.7, 4.1, and 26,000 tons/day, respectively. At the same time, market competition intensified. In 2022, state-owned enterprises in the comprehensive utilization of waste resources accounted for 6.7% of the number of enterprises, and the concentration of the industry holding 17.9% of assets was relatively high, and large state-owned enterprises developed on a large scale and intensive basis. Mergers and acquisitions, investment, and equipment sales. Chinese waste incineration companies go overseas in multiple routes. The main battlefields include Southeast Asia, Europe, and America.

Green license transactions and cogeneration open up new sources, and the profit level of waste incineration remains high.

In the context of the adjustment of the national subsidy policy, as stock projects gradually approach the national subsidy limit of 15 years or 8,2,500 hours of operation, and the gradual development of online bidding for new projects, a downward trend in waste incineration power generation revenue is already evident. However, the official implementation of the green certificate deal and the exploration of cogeneration by waste incineration companies can hedge to a certain extent the impact of the country's downturn or exit. According to the bank's estimates, under the scenario where the green license price reaches 90 yuan/unit and the benchmark coal-fired electricity price is 0.5 yuan/kilowatt-hour, the power generation revenue from waste incineration projects including green license revenue can still increase by 9% compared to before the national supplement withdrew. In terms of cogeneration, according to the bank's calculations, within the calculation range of the benchmark coal-fired electricity price of 0.3-0.5 yuan/kilowatt-hour, the unit price of heat sales exceeds 50 yuan/GJ, which can make the cogeneration operation conditions more economical. Waste incineration projects are expected to maintain a high level of profitability.

At this stage, waste incineration companies promise a low dividend ratio, but their ability and willingness to pay dividends are strong.

The bank has compiled the dividend rates and annual cash dividend ratios of some listed companies in the waste incineration industry in the past five years. Among them, stocks such as Junxin Co., Ltd. and Pioneer Environmental Protection have higher dividend rates. Judging from the dividend ratio, the minimum dividend ratio required by the pioneering environmental dividend policy reached 30% of distributable profits, and dividends have been paid in accordance with policy requirements for the past five years. The minimum dividend ratio required in other corporate regulations is generally 10% of distributable profits, and judging from the actual dividend situation in the past five years, all enterprises can pay dividends according to the regulations. The actual dividend ratio of most enterprises in most years was also much higher than the minimum ratio of 10% required by their policies, showing that waste incineration companies still have strong dividend capacity and willingness even when they have large capital expenses. The dividend ratio of Shanghai Environment has continued to rise in the past five years, and the dividend ratio has been stable in the past five years, such as Everbright Environment, Yuefeng Environmental Protection, and Brilliant Blue Environment.

Investment suggestions: It is recommended to focus on Weiming Environmental Protection (603568.SH), a large-scale private waste incineration leader with strong solid waste profitability and investing in new energy and new material tracks; the all-purpose heavy asset environment group with balanced development of water and solid waste pioneered environmental protection (600008.SH), the Shanghai environment (); Shanghai environment () with stable operation, reduced capital expenditure, and good cash flow; regional state-owned waste incineration operation platforms with reduced scale and stable operation of new projects, Sanfeng Environment (600323.SH 601200.SH 601827.SH 000885.SZ); Junxin Co., Ltd. (301109.SZ), a private waste incineration target with stable operation and a high dividend ratio.

Risk warning: The adjustment of the national supplement policy affects the risk of exceeding expectations; the implementation of the green certificate transaction policy falls short of the expected risk; the promotion of cogeneration of heat and power generation falls short of the expected risk; changes in assumptions will affect the risk of calculation results; the level of dividends falls short of the expected risk