Carbon tariffs are coming! A-share industries are directly affected! The investment logic of the environmental protection industry in the second half of the year is predicted!
At present, the PE of the environmental protection industry is at the bottom, and there is not much room for adjustment below 10 times. The industry will enter a period of horizontal M&A acceleration in the next 3-5 years, and the state-owned city public platform is the key integration target.
Author: Chen Xiaoqiong, Song Yining
Dialogue arrangement: Chen Xiaoqiong, Song Yining
As a new means of environmental governance and trade protection, the EU carbon tariff will enter a transition period in October 2023 and be officially implemented in 2026. Like a butterfly flapping its wings in the Amazon rainforest, it can cause a storm in the Mississippi River Valley. The gradual landing of the "Green New Deal" of carbon tariffs will also subtly affect the Chinese market across the ocean.
The change is already being felt in China's carbon market and secondary market. The gradual opening of the domestic carbon market in the future may provide new opportunities for the game of capital. If enterprises can seize the opportunities of carbon neutrality, they may also create new performance highlights.
So, what opportunities and challenges will carbon tariffs bring to China's carbon market and secondary market investment? Which industries are the first to be affected? Will performance and valuations come under pressure? What is the deeper logic behind the difference in carbon prices? Entering the second half of 2023, what is the investment logic and main line of the environmental protection sector? And what are the risks to focus on?
Panorama ESG invited Guo Peng, Deputy General Manager of GF Securities Development Research Center and Chief Analyst of Environmental Protection Utilities, to answer investors' questions.
ESG Quotes:
1. Compared with environmental protection companies with a market value of 100 billion yuan in Europe and the United States, China's 10 billion market value enterprises have huge room for growth.
2. In the next 3-5 years, horizontal mergers and acquisitions and asset integration in the environmental protection industry will accelerate.
3. At present, the PE of the environmental protection industry is between 10-15 times, and there is not much room for adjustment below 10 times.
4. The probability of CCER launch within the year is very high.
5. The carbon price is a comprehensive reflection of supply and demand and the progress of emission reduction.
6. Carbon tariffs directly affect the secondary market biodiesel, recycled plastics, energy, wind power, photovoltaic industries.
7. Investment in the environmental protection industry pays attention to the progress of CBAM and CCER in the short term, looks at potential flashpoints in the medium term, and focuses on leaders in the long term.
8. State-owned urban public platforms may become key targets for industrial integration in the future.
Guest introduction
Guo Peng
Deputy General Manager (MD) of Development Research Center of GF Securities, Chief Analyst of Environmental Protection Utilities, Analyst of New Fortune Platinum NFBR. For many years, he has won the first place in the Best Analyst Selection of New Wealth, the first place in the Golden Bull Award Selection, Crystal Ball, and Insurance Association, covering and tracking the latest trends and development rules of the industry in depth.
The following is the full text of the conversation:
01
Energy-side and commodity-side structures
There will be a carbon tariff impact
Panorama: What are the current rules of carbon tariffs that need to be focused on? Sentiment spreads to the A-share market, what variables may exist in the future? What else needs to be followed up?
Guo Peng：欧盟从大概2021年开始逐渐修订碳关税相关细则，并且不断增加一些细分领域行业与品类的税款。对于我们关注的中国资本市场和A股上市公司，影响应该是从2026年开始。可能我们会感受到第一能源侧，第二商品侧。对于出口到欧盟部分，必须整个能源上使用光伏、风电等清洁能源。第三材料侧，我们要使用再生材料或者说非化石燃料为来源的一些主要原材料。反映到上市公司上，国内已经逐渐在电力使用端运用超过30%的绿色清洁能源，在物料使用端用更多的再生资源，例如我们日常生活相关的像废塑料、生物柴油等等。有一部分环保上市公司也是以向欧盟出口一些能够抵扣碳税的相关的物品去形成一部分的营收占比。
02
Increased environmental costs of goods
Leading companies may profit
Panorama: At the company level, will the implementation of carbon tariffs in the future have a certain impact on the performance of affected enterprises? Will valuations be under pressure in the long run?
Guo Peng：我们分两个维度，欧洲的碳关税，或者说相应的碳的一些后续的收费，本质上会影响什么。首先是对欧盟出口的这些商品，早期我国绝大比例是使用煤炭发电，并没有度电上的一个碳税的要求，但从2016年到2025年或2026年欧洲碳税逐渐开始执行之后，我们出口到欧盟的商品就被迫要使用一定程度的清洁能源的比例。那么相应的上市公司，比如本来以燃煤为主的，随后要使用更多绿电。其实国内也有一个绿电交易的制度，反映在用电成本上一定的增加，或者一定的环境成本的考量。
The second point is that along with the European carbon tax policy, China also makes requirements for domestic enterprises in areas similar to EU regulations. In China, the power sector has begun to implement carbon quota systems, such as carbon taxes or carbon prices, and later industrial systems. We believe that there will inevitably be a certain degree of cost increase for the corresponding industry, but from the perspective of the industry, there is actually a certain role in promoting the leading companies in the industry. Last year, the top power companies traded carbon allowances, and finally achieved positive returns. Why? Because the head company has high production efficiency, better cost operation control, and less carbon tax or carbon generation than companies in the same industry, it can save certain carbon emission indicators, and finally form a certain positive income through trading or matchmaking. This can be observed in the power energy industry or some securities related to green power.
On the other hand, what we can see is renewable resources, such as the introduction of biodiesel in Europe, a certain proportion of non-oil extracted biomass must be added throughout the diesel use process, which is gutter oil for China. Gutter oil is precipitated to form some raw materials that can be used as UCO or UCOME, and then exported to Europe and added to biodiesel. This not only obtains a certain amount of revenue from environmental protection companies, but its price can even be more expensive than diesel from oil cracking. So we think this is also a good export income-generating area, similar to waste plastics and other fields, are booming.
03
Dual carbon is the transformation of national industries
It is an inevitable requirement for the high-quality development of enterprises
Panorama.com: For leading enterprises and small and medium-sized enterprises, what advice do you have for their future development and business transformation? How can companies better cope with the gradual tightening of carbon tariffs and avoid being at a disadvantage in international competition?
Guo Peng：欧盟碳关税的执行是一个路线图。它对于相应的细分品类，比如说清洁绿色能源的使用从10%-20%，并一路逐渐提高。对于国内的企业，我们觉得有几个方面。首先大家应该能够充分认识到，在国内我们更多提到的是双碳。双碳的要求对国内的龙头公司来说，其实是推动整个行业生产技术进步，响应国家更高质量的发展的一个必然的要求。我们观察到这两年上市公司对于ESG以及相应的追求也在逐渐提高，那么企业更高质量的发展也是在国家产业升级内部转型，这也是行业逐渐提升自我竞争力的一个必然的路径或阶段。
Second, to achieve the same level of development, we should pay more attention to the quality of the environment and pay more attention to the demand for resource goods, such as oil, natural gas, coal or other minerals. We need higher output value, and at the same time smaller consumption, such as environmental protection, energy saving, and even the use of some new technologies will promote the better and healthier development of enterprises. In more fields, such as the use of new materials and new energy, improving the level of technology and reducing unit energy consumption is actually a better development in the long run. Of course, because Europe has a relatively clear time roadmap, matching development has gradually formed some technical advantages in China, I think this is also a good direction.
04
Environmental protection industry valuations are in the bottom range
Panorama.com: Whether it is transformation or environmental protection, the revenue of enterprises from the perspective of investment will be affected. Do you think the performance and valuations of these companies will be under pressure in the short term? What do you think about the long term?
Guo Peng：总体来看的话，因为环保的外部性，它大部分时间是依赖于政府的治理，或者说依赖于政府的环保预算的支出，形成每年的需求。整个双碳具体到国内，总体来说环保产业还是受益的，因为它既打开了环保企业自身满足的一些需求，增加成本，更打开了环保企业所服务的居民生活、工业生产等相关各个领域。对于国内双向的需求和满足欧洲出口商品的需求，增加了环保自身的运营成本的同时，也增添了环保公司未来可以发展的新的领域，例如市场需求和更高的标准。其实对环保企业来说，我们觉得这是一个双向的影响，但是对于头部的企业来说，拉长时间来看还是一个比较好的预期。
The current capital market such as structured market, or the impact of various factors, from the current PE valuation of the environmental protection industry, the expected price-earnings ratio is basically between 10 and 15 times, which should be a relatively bottom range. We may be more concerned about the impact on the real performance growth rate of companies after the trial of some segments of the European carbon tariff in 2026, which may determine the valuation trend of the entire sector in the next two years, and we feel that there is not much room for adjustment below 10 times.
05
The probability of CCER launch within this year is very high
Panorama.com: The domestic carbon trading system is in the early stage of construction, and it is not directly connected with the EU, what do you think the implementation of carbon tariffs will bring to our Chinese carbon market in the future?
Guo Peng：截止到现在，通过我们这些年的不懈努力，中国国内已经初步建立起以火电行业配额制为主的总体碳交易市场。其实从过去的地方市场到现在上海交易中心为主的全国市场，每天的成交量都能保持在千万，甚至个别时间会出现更高的金额。那么当前我们碳交易市场的特点是什么呢？是以工业企业为主，特别是以电力行业为主。第一点，我们预期伴随着更多行业的加入，整个市场交易的活跃度以及市场的需求、供给方会更加多元，这个市场也会逐步的形成。
Second, A-share investors are more concerned about the launch of CCER. That is, in addition to looking at quotas, there is also a large market to replace or partially bear the expansion of the carbon allowance trading market through CCER emission reduction. Up to now, based on the statements of various ministries and commissions, the suggestions of policy experts, including our attention to the policy ports covered and listed companies, we expect that the probability of CCER launch within this year is still very high.
06
CEA complements CCER
Effectively reduce the cost of carbon saving for the whole society
Panorama: What is the difference between the CEA market and CCER for the inclusion of the industry and the future? How should investors focus on these two markets from different dimensions?
Guo Peng：碳排放配额市场（CEA）更多的是工业企业端的减排责任，比如说现在电力行业免费配额的分布：今年100个，明年90个，后年80个。通过类比，我们的政策也借鉴了欧盟的经验，通过逐年递减的方式去收紧全社会单一细分领域的排放指标。中国为什么首先纳入电力行业，因为电力行业占到全国40%以上的碳排放。第二步，钢铁、水泥、煤炭、化工、有色等八大重工业可能会率先纳入，这是碳配额市场的一个政策预期。
The National Certified Voluntary Emission Reduction Market (CCER) is an effective complement to the quota market. For example, our steel industry has worked very hard, but it is still difficult to achieve carbon emission reduction relatively economically or cheaply. I can buy CCER, for example in the waste incineration industry, the landfill industry, or the forest carbon sink. It is also permissible to reduce the overall carbon emissions of the steel industry by supporting carbon emission reduction in the other direction. Referring to international experience, the CCER market can be traded to the entire carbon allowance market, for example, 5% or 10% at the beginning, and can be expanded to 20% in the future, which we believe is complementary. Of course, through the launch of the CCER market, environmental protection enterprises will also be allowed or promoted to develop their own emission reduction business faster, such as giving the steel industry and the power industry a better supplementary market, so that the comprehensive carbon saving cost or carbon reduction cost of the whole society can be effectively reduced.
07
Carbon market activity will increase
Panorama.com: In addition to the CCER market, do you think there is any room for expansion in China's carbon market in the future at the level of trading methods and trading varieties?
Guo Peng：首先从单一行业到多个行业，整个交易的活跃度，会增加很多维度，增加很多时间空间和不同的需求。第二点，我们如果关注欧洲，它除了有现货市场，它还有期货市场。我们目前的价格大概在50人民币左右，海外的话我们看到前期突破了100欧元，最近大部分时间的交易在大几十欧元水平，我们相信国内价格走势也会类似欧洲逐渐的上涨。当价格波动性具备了一定空间之后，很多丰富的产品都可以出现在时间上的错期，在不同行业的错配以及在总量上的控制，我们觉得这些都是未来1到2年整个碳市场上可以涌现的最大的一些变化。
08
The carbon price is a comprehensive reflection of the relationship between supply and demand and the progress of emission reduction
Panorama.com: What do you think is the deep-seated logic behind the difference in international carbon prices? How will carbon pricing evolve in the future?
Guo Peng：首先一个国家的碳价是由该国的减排时间路线图来决定的。比如说欧洲碳价高的时候有100欧元/吨。美国的碳价不同区域有不同的市场，也会有不同的价格。例如加州会偏高，但一些内陆的州，或者说相对而言碳排放压力没那么大的州，价格就会偏低。所以我们认为它并不是一个简单的全球比价的效应，更多是考虑了区域供需关系，考虑了减排时间节奏的综合体现。对于中国来说，我们是双碳，是先达峰再中和。在达峰的过程中，我们倾向于用相对合理的碳成本推动技术工艺的提升，推动相应的领域减排量的下降更为关键，尽快实现达峰总量不再增长，这是我们当前更为关注的一个视角。
Looking back a little more, in the past, we had Shanghai, Guangzhou, and trading markets in various regions. In fact, there are some differences in the prices of different regional trading markets, so we think that in the long term it must be a process of gradual price increases, but we still have to distinguish the local demand relationship and distinguish our current industrial development. It is imperative to see the inclusion of more industries, followed by complementary markets such as CCER, including the inclusion of more trading instruments, which we think may be more meaningful. The absolute price is actually more a reflection of supply and demand.
09
The secondary market focuses on tracking biodiesel,
Carbon tariff-sensitive industries such as recycled plastics and energy
Panorama: Specific to the secondary market, what changes and reactions do you think the implementation of the EU carbon tariff will bring to China's carbon market and secondary market in the future?
Guo Peng：二级市场一直在关注中国的碳市场的建立和CCER推出的时间节点。欧洲不断收紧的碳关税相关政策的逐渐执行，以及实际反映出的成本的增加，或者说具体的对各个行业的影响，这些都是我们二级市场应该关注的。当前我们是选择一些相对更容易跟踪，更容易反映到收入利润订单上的一些细分领域，比如生物柴油、再生塑料等，这些都是通过欧洲不断的增加碳排放需求的，以及国内的企业率先反映在营收和订单上变化的一些领域。另外一块就是能源和电力行业。新能源、风电和光伏这三个领域是相对重点跟踪的方向。
10
Focus on industry volatility caused by supply and demand and price
Panorama: What are the risk points that investors need to focus on when investing in these key affected industries?
Guo Peng：一是我们要研究清楚这个行业的波动性。我们以过去一年半的生物柴油行业为例，伴随着前期的一些外部因素的变化，我们看到油价从几十美金涨到了一百几十美金，又回到了七八十美金。在这个过程中生物柴油的价格产生了巨大的波动，上市公司逐季度的业绩也不稳定，对应的股价也大幅度的起落。
Second, when we pay attention to various subdivisions, considering that double carbon is a replacement of original resource and energy products, we must study the corresponding price trend and supply and demand. And you can't simply think that carbon neutrality is to reduce emissions, or Europe has to impose carbon tariffs, so demand must increase significantly. Against the backdrop of sharply increased demand, prices continue to fluctuate sharply with the stock, which is the demand in Europe for more than a year. Although it is in the context of rapid growth, it is not the volume but the price that causes the performance of listed companies to fluctuate significantly.
11
Environmental protection investment short-term policy,
Focus on the flashpoint in the medium term and focus on the leader in the long term
Panorama.com: If you look at the short, medium and long term, what do you think investors should be different about the choice of investment targets?
Guo Peng：如果从短期来看，当下欧洲碳关税收紧的态势是没有改变的。但是它整个经济相对来说也有一些要解决的问题。对国内而言，我们更关心的是CCER以及碳配额市场能不能纳入更多行业，所以半年到一年我们在跟踪欧洲的同时，对国内的市场也需要更多的着眼或者更多的分析与判断。
In the medium term, we suggest that investors can broaden their perspective to see more of the market that is in general demand but may explode quickly in the future. For example, biodiesel. At present, everyone is more concerned about the use of biodiesel vehicles, then it may be in the two-to-three-year dimension, we are more concerned about the part of aviation fuel, which has a higher value and greater amount, and the quality required may be several times that of biodiesel. So we think the perspective of two or three years in the medium term may focus on these aspects.
If you take a long-term perspective, we recommend paying attention to leading companies in various industries. Because in the context of the full implementation of carbon tariffs, for example, after 5 to 10 years, carbon tariffs have become a daily commodity, domestic requirements have also been greatly improved, and the head companies in various industries have relatively improved their competitiveness and controlled costs, in fact, in this process, they have become the most beneficial group.
12
State-owned urban public platforms may become key targets for industrial integration
Panorama.com: What other investment logic and main line do you think investors can focus on in the second half of 2023?
Guo Peng：我们团队提示大家关注的是整个城市公用平台：每个城市做水务的，做垃圾焚烧的，隶属于当地国资或者说政府旗下的一些上市公司。我们看到现在市场有很多讨论，比如说土地财政、股权财政。土地的出让以及相应的收入降低之后，地方政府需要找到新的投资方向，或者说可以盘活投资的一些平台。我们认为隶属于地方政府，国资旗下的城市水务公司，城市垃圾焚烧公司会成为下个阶段地方投融资平台关注的一个重点。首先它们起步估值很低；第二比如说用水量、污水量，垃圾焚烧量相对非常稳定。它们的业绩成长曲线，基本上从现在看未来三年比较确定，特别是大部分能够上市的城市平台，他们的业务聚焦的都会是省会城市，或者千万人口的大中城市，相对而言能够形成的业务体量会比较可观。我们大概拉了一下，这些公司都是有5到10多亿的利润规模，现金流在10到20亿的区间。我们认为这个细分赛道未来会成为资本市场寻求一些估值提升，业绩提升，并且进行一些资产整合以及异地扩张等，可以打开成长空间的一些地方。
13
The next 3-5 years
Horizontal mergers and acquisitions and asset integration in the environmental protection industry accelerated
Panorama.com: Now that our country has put forward the goal of dual carbon, how do you see the connotation of sustainable development and your role?
Guo Peng：经历这么多年环保行业研究，最早我们覆盖的公司确确实实以工程为主，出现过非常持续高增长的阶段，像2013到2015年甚至到2017年。也经历过当年第一批整顿以及地方融资平台的问题出现后，像2018到2020年的低潮期。这几年我们也看到，从工程到运营之后，大家的现金流在变好，投资能力在增强。我们认为更长期的后面几年的双碳，环保会和能源节约、能源创新以及技术新材料创新结合在一起。内部转型也好，或者说向外的业务拓展也好，会成为环保公司普遍的一个选择。根据自己稳定的现金流业务去拓展可能性，基于自己所守住的原有地盘，扩张更多区域的一个横向的并购以及资产的整合，我们认为是未来3到5年环保行业面临的一个新的发展机遇，同时这也是对于企业提出的一个挑战。不只是原有的业务，更多的走出去，更多的去拓展自己的业务空间，我们认为是资本市场关注的一些重点。
14
Benchmarking Europe and the United States
China's environmental protection companies have huge room for growth
Panorama.com: Do you think the connotation of sustainable development has become more profound?
Guo Peng：以前我们看到的所谓的可持续发展，比如说收入利润，是靠工程和业务体量突破带来的。但是现在大家各自的区域可能做的差不多了，如果不进行第二主业的拓展，不进行新的业务的尝试，可能体量会相对逐渐的稳定下来，增速会从30%降低到10%。可持续增长的内涵，我们认为是原有的业务保持住，新的业务再去突破；原有的地盘保持住新的市场再去突破。因为我们国家是一个人口基数非常庞大，工业体系非常庞大的一个总的蛋糕，我们相信企业打磨好这些年的增长，后面再去拓展的时候依然会有非常强大的生命力。
In fact, we benchmark Europe and the United States, and the population much smaller than us has given birth to environmental protection companies with a market value of hundreds of billions of dollars, including water, solid waste and other fields. We are now the largest in China, that is, at the level of 300-500 billion market capitalization, so we think that the development space is still very large.
