Eight key points of the environmental protection industry market in 2018

Source: Green Online

In 2018, it was an extraordinary year for the environmental protection industry chain. During the year, including top-level design, environmental inspectors, and special actions, the market's turbulent downturn and the transition and improvement under the new regulations have made this year particularly difficult.

"No one expected that the market in 2018 would be such a curve. After the continuous rise in the first half of the year, the market began to fluctuate downwards in the third quarter of 2018. Today, the capital market has turned from hot to cold, and PPP projects have been slow. There is a huge challenge to product collection and customer maintenance in the market.” An industry veteran reviewed the year’s difficulties.

"At the same time, 2018 is another year of strict supervision." The above-mentioned executives further pointed out that "as a practitioner, we feel very profound. The central environmental inspector superimposed two rounds of 'look back' to achieve seamless coverage and national centralized The drinking water source ushered in a comprehensive 'physical examination and consultation', the city's black and odorous water body treatment stepped into the tough stage, the environmental monitoring data fraud was fundamentally reversed, and the hazardous waste treatment and disposal of the shortcut keys... These conditions are not in the past year. It has been said that this is an extremely unusual year."

It is true that under the gradual fermentation of the new implementation of the regulatory new regulations and the impact of the new volatility, the environmental protection industry is facing the pain of focusing on the plastic industry ecosystem. However, because of this, from the time of the 40th anniversary of reform and opening up, the “middle-aged” environmental protection has renewed a new “spiritual spirit”.

Accelerate into the era of strong supervision

When time comes to 2018, environmental supervision makes people feel it once: "There is no strictest, only stricter."

"The Law of the People's Republic of China on Soil Pollution Prevention and Control", "Three-Scheme Plan of the Ministry of Eco-Environment", "Three-Year Action Plan to Win the Blue Sky Defence War", "Agricultural and Rural Pollution Control Action Plan"... While the environmental protection legal system is constantly improving, A series of special actions such as intensified supervision of air pollution, special supervision of black and odorous water bodies, and protection of centralized drinking water sources in the country have been carried out in depth, and the annual number of people has expanded from several thousand to tens of thousands. Among them, the Central Central Ecological Environmental Inspector “Looking back” should not be underestimated.

I interviewed 5,499 people, accounted for 8,396 people, and fined more than 910 million. This is a brilliant transcript from this special action. In the past year, two batches of 11 central eco-environmental inspectors have conducted “going back” on 20 provinces. The former environmental protection department takes the lead and the relevant leaders of the Central Discipline Inspection Commission and the Central Organization Department participate, and the results of the inspection will serve as an important basis for the assessment of the cadres.

Finding key points, fulfilment of responsibility, promoting rectification, and realism... In the next four years, such a high-pressure situation of environmental protection law enforcement will continue. Since 2019, the Ministry of Ecology and Environment will comprehensively carry out the second round of pollution control, accountability, and supervision storms. While promoting the advancement of environmental protection inspectors, it also aims to create a "two accounts" between economic development and environmental protection. Take a new road to breaking the problem. At the same time, as an industry with strong policy influence, the normal environmental supervision according to law will also become the biggest driving force of the environmental governance industry.

The investment volume has reached a new high

From the growth of 60 billion market scales in 2004 to the market scale of 1.35 billion in 2017, the operating income of the environmental protection industry has maintained an average annual growth rate of 26.14%. According to public information, in 2016, environmental sales revenue reached 1.09 trillion yuan, up nearly 20%. Since then, the word "environmental protection" means a trillion-level business opportunity.

According to the previously issued National Urban Ecological Protection and Construction Plan (2015-2020), by 2020, China's environmental protection investment will account for no less than 3.5% of GDP. According to experts' prediction, in the next three years, the scale of the environmental protection industry will reach between 15,000 and 2.2 trillion, with an annual growth rate of about 13%-20%. If estimated by the median of 15%, the investment in environmental protection industry in 2020 is expected to exceed 1.97 trillion.

However, from the perspective of the subdivision sector, under the general trend of air pollution prevention, water environment treatment and soil remediation, the environmental protection cake does not stop there. According to experts' estimates, the investment demand for winning the blue sky defense war exceeded 1 trillion yuan; the investment demand for clearing the water conservation war was about 1.78 trillion yuan; the investment demand for the pure land defense war was close to 657.7 billion. The increase in investment in environmental pollution control will further drive social capital investment.

The industry is sinking, and the two major segments are renewed.

Another very important change is the opening of non-market areas such as sanitation and hazardous waste disposal, and the innovation of environmental service models, which has created new investment hotspots. In the past decade, the environmental protection industry has experienced rapid development, and some of the high-growth golden periods in the segment have ended and entered maturity. However, some sub-sectors still have huge market investment scales, such as the sanitation market that is still in its infancy, and a dangerous disposal of the vast blue ocean.

From the point of view of the sanitation and clean market, on the one hand, with the continuous advancement of industrialization, the trend of sanitation and sanitation integration business will become more obvious, and it will continue to extend to the back end. On the other hand, with the continuous development of the market context, intelligence has become a new trend in the development of the sanitation industry. It is estimated that by 2020, the market space for sanitation services will exceed 170 billion.

A little different from the sanitation market is that stricter hazardous waste disposal policies bring more certain market opportunities. As the industrial chain is at a high gross profit margin, cash flow is stable, and the supply and demand relationship will continue to be tense during the “13th Five-Year Plan” period, the profitability of hazardous waste treatment projects will still have potential for further digging. According to the E20 Environmental Research Institute and other institutions, by 2020, the production of hazardous waste may reach 100 million tons, and the market size will exceed 200 billion at the disposal price of 2,500/ton. The “shuffle” of the survival of the fittest in the market has accelerated, and the supervision has been continuously strengthened. How to upgrade the waste disposal enterprises into the focus of the industry.

The listed company’s mid-year report is hot and cold

In the first half of 2018, the performance of listed companies in environmental protection showed a polarization. According to the performance of 150 environmentally-friendly listed companies in the 2018 semi-annual report, the net profit of nearly 100 companies has increased, and the net profit of 50 companies has declined.

Under the background of the promulgation of favorable policies, some enterprises have taken advantage of the potential to expand their business scope and increase their income. Among them, the net profit of 22 listed companies increased by more than 100%. Among them, including Guohao Environmental Protection, Tianzhu Environment, Tianjin Membrane Technology, Bosch Branch and other enterprises. In addition, many environmental leaders including Everbright International, Botian Environment, and Enlighten Sander are still eye-catching.

The stronger is stronger, but the days of some environmental companies seem to be more difficult. On the other side of the coin, the environmental management industry chain is facing difficulties in financing financing, and some environmental protection companies have defaulted on debts and issued bonds.

Toon that goes down quickly?

At the same time, the capital market fell sharply, and environmental protection stocks also fell. According to public data, the environmental protection sector fell by 26.89% from January to June 2018.

Affected by the de-leverage, regulation of PPP business and the tightening of financial policies, the environmental industry has been in trouble. The peak period of investment that should be highlighted has been replaced by the status quo of “external heat and cold”, and the overall performance of the environmental protection industry has declined. Some star stocks have also been falling, and even the hidden worry of the explosion, which is undoubtedly worse. “Many environmental companies used to have a market capitalization of 20 billion yuan and 30 billion yuan, but this year’s tens of billions of market capitalization companies have only single digits or slightly more points.”

In the first nine months of 2018, 62 environmentally-listed companies had a total operating income of more than 122.4 billion. Despite a year-on-year increase of nearly 11%, this growth rate has shown a sharp decline compared to last year. At the same time, the asset-liability ratio of the environmental protection sector climbed to 55.8%. Zhao Wei, president of the Environmental Chamber of Commerce of the National Federation of Industry and Commerce, believes that the reason why the environmental industry has been based on policy-driven “crazy long” has deviated from its value. In the past few years, the environmental industry was in a stage of rapid development or barbaric growth. Enterprises are eager to expand their scale and occupy the market. Now they are faced with how to change and adapt to policy requirements under the strong supervision situation.

However, some analysts believe that this is the "cracking" of environmental protection PPP projects.

The PPP project stepped on the "quick brake"

"In some cases, the outbreak of the industry means overdrafting the future." This sentence may be more suitable for the environmental PPP market in 2018.

Thanks to favorable policies in the past, the environmental protection industry PPP project has ushered in a spurt of growth. The most obvious way for social capital to enter the environmental protection field is through the way of environmentally friendly PPP projects. With the continuous increase in the intensity of environmental protection, the Ministry of Ecology and Environment has started the "seven battles", which directly promoted the landing of a number of environmentally friendly PPP projects. Especially in the field of waste treatment and sewage treatment with early market development and relatively stable cash flow returns, the participation rate of private capital is as high as 79%. This means that private capital has a leading and leading role in PPP throughout the ecological and environmental protection field.

However, the introduction of Circular 92 is like "a dose of fierce medicine", which means that the PPP model has entered the "freezing period" after triumphantly. A large number of non-standard PPP projects have been cleared out of the warehouse since then, and many of the highly successful environmental PPP companies that have triumphed in the past have been in debt crisis and continue to this day. “The credit rating of environmental protection companies is generally not very high, and it is even more difficult to get money from financial institutions.” Luo Jianhua, secretary general of the Environmental Chamber of Commerce of the National Federation of Industry and Commerce, once admitted. After the storm, the environmental protection PPP project after the restart is gradually returning to “specialized governance”.

Environmental PPP is cold, rooted in money and risk. With the rising cost of financing, the capital chain has become the sword of Damocles that is hanging on the head of environmental protection companies. At the same time that financing is difficult to lead to an increase in corporate financial costs, PPP clearing and local government de-leveraging have made environmental protection projects slow down, and environmental companies have changed their attitude toward PPP from optimism to prudence. The environmental PPP project package has expanded from several hundred million to several tens of billions, which will have a huge impact on corporate cash flow.

Seeking state-owned support to "winter"

According to the "2018 China Environmental Enterprises Top 50 List" issued by the Environmental Chamber of Commerce of the National Federation of Industry and Commerce, among the top ten environmental enterprises, there are 7 state-owned enterprises, occupying an absolute dominant position. The other three environmentally friendly enterprises of famous enterprises are Oriental Garden, Bishuiyuan and Tiehan Ecology. This is just a microcosm of the current state-owned enterprise's state-owned enterprises to accelerate the environmental protection field.

Whether it is launching a variety of pollution control and waste disposal tools, CGN, which is still in the process of water treatment, or Gezhouba, which is frequently used for urban and rural environmental management, or a Beijing sanitation platform that creates a full-caliber solid waste disposal and utilization platform... Environmental protection has become a state-owned enterprise looking for performance. A new path to growth. However, unlike the previous ones, in the face of the slowdown in the growth of 2018 performance and the increasing commonality of funds, the search for state-owned assets has become the “most preferred” for some environmental protection companies.

Haidian Guotou increased capital Haidian Technology became the controlling shareholder of Sanju Environmental Protection Co., Ltd. The Beijing Municipal Government of Haidian District Government became the actual controller of Sanju Environmental Protection, and the Oriental Garden and the Three Gorges Group jointly signed the “Framework Agreement on the Strategic Cooperation of the Yangtze River Protection” and Shengyun Environmental Protection and the company's controlling shareholder Kai Xiaosheng signed a Strategic Cooperation Agreement with Sichuan Energy Investment Group Co., Ltd., and the Nanchang Municipal Government's funding platform will jointly establish a 6 billion fund with Shanghai Tushi and other institutions to invest in Shenwu. The promotion and application of the Group's core technologies and the Tianxiang environment will eventually cooperate with the “signing contract” promotion project.

The return of the above-mentioned enterprises to the national capital may make many private enterprises feel complicated. But for those companies with fast technology updates and core advantages, seeking development through a balance between competition and cooperation is a powerful lever to enhance profitability.

Reshuffle

The shuffle is intensified, the shuffle is deep, and the card is thoroughly shuffled... Saying, "shuffle" is really coming back.

Environmental quality improvement targets in the fields of water, gas and soil have been included in the timetable, and a large number of enterprises are pouring into the environmental protection field to seize the market and divide the cake. However, according to the survey conducted by China Environmental Protection Industry Association on about 7,000 environmental protection companies, the results show that the number of enterprises with operating income exceeding 100 million accounts for only 10.87%, but the proportion of their environmental protection business revenue exceeds 78.97%, accounting for operating profit. More than 89.85%.

Like the industry growth period at the crossroads, the number of companies is large but the volume is generally small. What is even more worrying is that this differentiation is intensifying in the environmental protection industry. Although the prospects of the entire environmental protection industry are still optimistic, the environmentally-friendly industries with a large number of enterprises will surely usher in a real reshuffle, and the strength of building a moat will be more prominent. As a result, most environmental companies in crisis have not closed down, but have accepted restructuring.

A battle is inevitable. "The next step is to see who can stick to it. If it can't be moved by the debt of the snowflake, it will probably mean business failure." An industry veteran said frankly.

Editor in charge: Ge Hongyan

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