1. Policy trends

The formation of a large-scale regulatory pattern, opening the era of deep cultivation

The domestic environmental protection industry has entered 2019. Looking at the development of the environmental protection industry, 2019 is undoubtedly a brand-new situation, and a large regulatory pattern of soil and water solid waste gas has been formed.

Under the new pattern, the environmental protection industry has entered the era of comprehensive policy cultivation from the era of policy seeding.

In the era of deep policy cultivation, the efforts of three dimensions will play a substantive role in promoting the development of the environmental protection industry.

1. The time dimension of policy: the deadline is approaching, forcing the industry to accelerate

In the past four years, the environmental protection industry's comprehensive policies and regulations concerning water, soil, gas, and solid waste treatment have come a bit late, but they are still in place.

"Water Ten Articles", "Key River Basin Water Pollution Prevention and Control Plan (2016-2020)", "National Groundwater Pollution Prevention and Control Plan (2011-2020)", etc.:

By 2020, the proportion of Grade III water in the seven major river basins will reach more than 70%;

The black and odorous water bodies in cities at prefecture level and above shall be controlled within 10%; the proportion of urban centralized drinking water sources with water quality reaching or better than Class III is generally higher than 93%;

The proportion of nationally poor groundwater quality is controlled at about 15%;

The proportion of coastal waters with good water quality (Class I and II) reaches about 70%;

The inferior V category in the Beijing-Tianjin-Hebei region dropped by 15%;

By 2020, 130,000 new organic villages that have completed comprehensive environmental improvement will be added;

By 2020, all counties and key towns across the country have sewage collection and treatment capabilities, and the sewage treatment rates in counties and cities will reach about 85% and 95% respectively;

The harmless treatment and disposal rate of urban sludge at prefecture level and above should reach 90% or more by the end of 2020;

The harmless treatment and disposal rate of urban sludge at prefecture-level and above should reach 90% or more by the end of 2020.

"The Ten Principles of Qi", "Three-Year Action Plan for Winning the Blue Sky Defense War", "Work Plan for the Prevention and Control of Volatile Organic Compound Pollution in the 13th Five-Year Plan" etc.

By 2020, the total emissions of sulfur dioxide and nitrogen oxides will be reduced by more than 15% compared with 2015;

The concentration of PM2.5 in cities at the prefecture level and above dropped by more than 18% compared with 2015;

The ratio of days with good air quality in prefecture-level and above cities reached 80%, and the ratio of days with severe pollution and above dropped by more than 25% compared with 2015;

By 2020, establish and improve the VOCs pollution prevention and control management system with the improvement of ambient air quality as the core, implement VOCs pollution reduction in key areas and key industries, and reduce total emissions by more than 10%;

By the end of 2020, the emission permit system will be fully implemented in key VOCs emission industries such as electronics, packaging and printing, and automobile manufacturing.

"Ten Articles", "Thirteenth Five-Year Plan for Ecological Environment Protection", "Implementation Plan for Domestic Waste Classification System", etc.:

The safe utilization rate of contaminated farmland reaches about 90%, and the safe utilization rate of polluted land reaches more than 90%;

By 2020, the national comprehensive utilization rate of industrial solid waste will increase to 73%;

By 2020, the comprehensive utilization rate of straw will reach 85%, and the national modern agricultural demonstration zone and the main grain-producing county will basically realize the recycling of agricultural resources;

By 2020, all cities will fully implement a garbage classification system, and basically establish corresponding laws, regulations and standard systems. Public institutions generally implement garbage classification. As a pilot, 46 cities must initially establish a garbage classification system;

The key heavy metal emissions of key industries in 2020 will be 10% lower than in 2013;

By the end of 2020, all counties (cities, districts) will be fully covered by soil environmental quality monitoring points.

2. The implementation of the policy: environmental protection inspector

After the seeds have been sown, whether they can be harvested, and how much harvest they will ultimately depend on the skill of watering, fertilizing and maintenance.

Therefore, from a policy perspective, the next focus must be on the implementation of environmental protection policies and regulations, and this will be the most important work of the Ministry of Ecology and Environment from 2019.

Starting in 2019, environmental protection inspectors led by the Ministry of Ecology and Environment will cover all large and small enterprises, and private enterprises and central enterprises will be treated equally.

As environmental protection laws and regulations are put in place, penalties involving environmental protection, including fines and criminal liabilities, will be greatly implemented.

3. Policy persistence: normalization of inspections

In 2018, the Ministry of Environmental Protection was renamed the Ministry of Ecology and Environment. Behind this name change are changes in functions and attitudes.

Local environmental protection bureaus are also gradually being upgraded to ecological environment bureaus, and the new organization will assume normalized environmental protection inspection tasks.

At the end of last year, I chatted with a friend who was a journalist in Nantong. He told me that the government’s attitude towards environmental protection has really changed a lot. Why do I see the problem? He said that they got a report on the environmental protection of Nantong City for the whole year of 2018. The data on the acceptance rate of reported cases is 5 times that of 2017 and 16 times that of 2016.

Not only has the case acceptance data increased dramatically, but the processing efficiency has also increased significantly. After being reported, many companies have indeed been investigated and even reported in the newspapers. This is all because of an ordinary citizen's report, which was difficult in the past. imagination.

The current environmental inspections are not a gust of wind movement, but are transformed into the core work of the local ecological environment bureaus.

2. Market Trends

The situation is very good, deepen the stock, embrace the increase

We are all talking about the cold winter, but what is the cold winter? What does the cold winter in the environmental protection industry mean?

In fact, there is really no need to exaggerate the atmosphere of winter too much. Specific issues need to be analyzed in detail. As a practitioner in the industry, there is no need to be overly anxious. What we have to do is to think about opportunities in our field.

As long as the real user needs are still there, the industry is spring. Even in the cold winter, there is still strong demand in the environmental protection industry:

Field One Environmental Monitoring

Throughout the history of environmental protection development in various countries in the world, environmental protection will experience a process of transition from engineering to service.

As a key link in the environmental protection industry chain, environmental monitoring is usually absent from the  half of the development of the environmental protection industry, but it will never be absent from the second half of the development of the environmental protection industry.

As an environmental monitoring company that masters smart environmental protection data, it has inherent advantages in the future development of smart environmental protection, and can gradually realize the transformation from equipment vendors to system integrators to platform operation service providers.

Therefore, from the perspective of overall environmental protection, environmental monitoring will be the leading force in the digital iteration of the environmental protection industry.

The field of environmental monitoring is largely the big data of the environmental protection industry.

For a company, seizing the future chess piece of environmental monitoring is equivalent to adding an intelligent radar to its own company's strategy. Only companies equipped with radar can achieve efficient layout and precise strikes at the  time. Competitors will face unfair competition from you, because you are from the perspective of God.

Field Two Hazardous Waste Treatment

Hazardous waste will be the most profitable segment of the environmental protection industry in 2019.

From the perspective of industry development, most waste production enterprises have limited production of hazardous waste. However, due to the high cost of hazardous waste treatment and the lack of supervision in the past, it is relatively easy to conceal, dump, and discard. The phenomenon of underreporting and underreporting is serious, leading to dangerous The demand for waste treatment cannot be effectively released.

Therefore, the policy has always been the gate of hazardous waste demand. Once the gate is opened, the era of hazardous waste will come.

A clear business model, a huge demand gap, and with the regulatory drive of policies, this demand is gradually released.

At present, the annual output of hazardous waste in my country is about 80 million tons, far greater than the announced 40 million tons.

At the same time, environmental protection inspections and government supervision continue to strengthen. Under the background of supply-side reforms, corporate profitability has increased and willingness to pay has become stronger. Under this background, the demand for hazardous waste treatment will also be released at an accelerated pace.

Field Three Waste Incineration

The "Thirteenth Five-Year Plan for the Construction of National Urban Domestic Waste Harmless Treatment Facilities" released in July 2017 clearly pointed out that by the end of 2020, the treatment capacity of my country's domestic waste incineration facilities will reach 591,400 tons per day.

The determination of these hard targets has further set off a new round of release of the waste incineration market during the "13th Five-Year Plan" period.

In the past two years, the pace of development of the waste incineration industry can be described as "going hard and fast".

In particular, the rapid development of the waste incineration field in 2018 is in sharp contrast with the current environment of the entire environmental protection industry.

While many water companies are on the shrinking front, waste incineration companies are busy expanding.

Why does waste incineration dare to operate against the market?

The underlying logic is still a clear business model. Although it is a heavy asset operation, its profitability is stable. The completion of a project is a long-lived cash cow for the company. Who wouldn't want to build more?

Field 4 Industrial Wastewater

The  task of the "Water Ten Measures" is to "strengthen the prevention and control of industrial pollution."

After years of development, the technical bottleneck of industrial environmental protection has long been broken. For the environmental protection industry, it has already reached the point where it owes nothing but wind. We can see that the governance effects of many domestic companies have even surpassed international standards (in many cases, national standards also exceed international standards).

For the field of industrial wastewater, technology and management are the most critical elements. Cost-effective technical solutions and high-level management services will become the core competitiveness of environmental protection companies.

Through mergers and acquisitions and capital integration, increasing industry concentration can quickly improve comprehensive service levels and capabilities.

At present, we can already see large-scale mergers and acquisitions in the environmental protection industry, especially for more and more technology-based companies that have been merged. These mergers and acquisitions are in advance of the formation of industrial environmental protection outlets.

The  half of the water industry will look at municipal administration, and the second half will look at industry.

In addition, the more important point is that the business model of industrial wastewater is very clear. There is no shortage of banknotes in the pockets of users. It depends on whether you have real skills.

Area Five Areas of Watershed Governance

Watershed governance is the largest sub-field in environmental protection, so big that no one can eat alone.

The Ten Water Regulations clearly stated that by 2020, the seven major river basins, including the Yangtze River, the Yellow River, the Pearl River, the Songhua River, the Huaihe River, the Haihe River, and the Liaohe River, will have a total of 70% or more of good water quality (up to or better than Category III). The proportion of good water quality in the seven major river basins has reached more than 75% overall.

River basin governance has the characteristics of strong systemicity and large investment in single projects. It must be based on the overall improvement of environmental quality, so it is slower than the treatment of black and odorous water bodies.

With the rapid increase in domestic sewage treatment rate and garbage treatment rate, and other types of point source pollution have been controlled to a certain extent, river basin governance has been clearly put on the agenda.

It is estimated that by 2020, the market space for river basin governance will exceed 2 trillion yuan. The next three years will be the period with the greatest space for river basin governance and the fastest release.

Area Six Rural Pollution Control

To some extent, the development of China's environmental protection industry is a microcosm of the development of China's urbanization.

In the past 20 years, the rate of urbanization in China has been very fast, our perception is also very strong, and the number of people in the city has increased.

But even with such dramatic changes, China's urbanization has only just reached halfway, and there is still a lot of room for the future.

The stimulation of urbanization on the real estate industry is timely. Needless to say, everyone can feel it. However, the stimulation of urbanization on the environmental protection industry will be delayed again. This is the backwardness and unscientific urban planning that the industry often talks about.

The bonus released by urbanization to the environmental protection industry will be delayed, but it will certainly not be absent. Now it has even accelerated. We can see that not only large cities, but also many urban-rural areas have begun to pay attention to sewage treatment.

In the future, urbanization will gradually change from land-led and real estate-driven urbanization to people-oriented urbanization. At the same time, China will put more emphasis on the integration of urban and rural areas, and rural revitalization will bring more investment opportunities.

This will release environmental protection investment opportunities far exceeding that of cities, and the field of rural pollution control is a big wind.

3. Funding trends

The formation of a large-scale regulatory pattern, opening the era of deep cultivation

The story of capital and the environmental protection industry is too dramatic.

The  year of the environmental protection policy is 2015. What is annoying is that just as the environmental protection industry began to rise in 2015, the domestic economic growth began to slow down, so the slow and low level of industrialization of the environmental protection industry was also due to this.

There is a feeling that I have been waiting for you for ten years, but in exchange for a fate to pass by.

The story of funding will continue in 2019. In this streaking era, there are three realities that everyone needs to recognize:

1. What kind of situation are we in: the general environment

From a macroeconomic point of view, we have achieved world-renowned achievements in the past 40 years, but behind the miracle creation, there are also some places to make up lessons.

The economy is developing at a high speed, and there has been no serious adjustment along the way. The backlog has been slack in the power system that promotes economic development, and the leverage has reached a relatively high position.

But such a high leverage ratio cannot be reduced in one or two years. In 2018, everyone felt very painful, but we only did a little bit of deleveraging.

If the leverage is not lowered, a new round of growth will not come. It's like a person running on a road with a heavy object on his back. If he can't run fast, he must let go of this burden.

Therefore, the future trend of the general environment is to lay down the burden and gradually reduce the leverage. It is not clear how long the time is, but it will definitely not be completed in one or two years.

2. How will we be affected: the government's ability to pay for environmental protection

Investors often say that the core problem of the environmental protection industry is the lack of business models.

The so-called lack of business model is a question of who pays in the environmental protection industry.

For the municipal environmental protection sector, which currently accounts for the largest business volume in the industry, the main body of payment is the government, that is, the infrastructure investment and subsequent maintenance fiscal expenditures of the government urban investment platforms in various places.

Today, the government's debt ratio is as high as 260%, which is what everyone usually talks about about the debt crisis of local governments. It is precisely because of such a high debt ratio that last year's deleveraging policy emerged. For the economy to continue to operate steadily, debt must be reduced.

To put it more bluntly, the stimulus effect of the 4 trillion investment in 2008 is almost released. The problem to be solved now is the transformation of the manufacturing industry that reduces debt and overcapacity.

As a result, policy expenditures will inevitably become austerity, and environmental protection projects, which are big money-burners, will naturally be affected.

3. What can we do: operating funds for environmental protection companies

In the past five years, although the development of the environmental protection industry has not been able to catch up with the 4 trillion wave, a large amount of capital has entered the industry.

However, the entry of capital into the environmental protection industry is not just a matter of time. The main motivation is to reap the dividends released by the intensive introduction of environmental protection policies.

When the dividends disappear and the government's money bag tightens, the environmental protection industry will naturally enter the era of streaking.

Without the continuous injection of government funds, social capital will not invest or keep money in environmental protection companies.

This is what we saw last year. Many listed environmental protection companies have experienced major shareholders liquidation reduction. This situation will continue until this year, and it is still happening. Pengyao Environmental Protection, which recently went public, has also encountered similar embarrassment.

Money is so tight, should we consider transformation?

This is the strategic choice of many companies today: Is it necessary to transform from heavy assets to light assets?

Many people believe that the risk of asset-light operations is less than that of capital-heavy operations