China Environmental:Key takeaway from hazardous waste expert call

类别:投资策略 机构:德意志银行 研究员:Thomas Zhu,Michael Tong 日期:2018-01-25

Key takeaways from hazardous waste treatment expert call.

    We hosted a conference call with Ms. LIU Yuan, General Manager of a hazardouswaste treatment plant in Jiangsu. Ms. Liu has over 10 years of experience inthe hazardous waste treatment industry and is among the earliest batch ofprofessionals entering the industry in China. Key takeaways include:Project introduction.

    The Zhenjiang project has hazardous waste incineration capacity of 26 ktpa with100% utilization rate, capable of processing 27 kinds of hazardous waste. Thecompany and the local government co-invested in a hazardous waste landfillproject with capacity of 14ktpa. The incineration plant receives waste from megasizeindustrial customers in different cities within Jiangsu.

    HWT market in Jiangsu and China.

    Jiangsu has hazardous waste incineration demand of ~800 ktpa and an approvedcapacity of 1,100 ktpa. According to management, the actual treatment capabilitywas only ~550 ktpa in 2017 because: 1) some approved facilities have notcommenced operations; 2) some imported facilities faced difficulties in treatingChinese waste and suffered from low utilization; and 3) lack of experiencedmanagement team. Ms. Liu expects competition in Jiangsu to intensify frommid-2018 when capacity ramps up and utilization rate improves. She also believesthat HWT market supply-demand dynamics are more favorable in Central/WestChina compared to coastal China.

    Treatment fees.

    Average treatment fees are RMB5,000/ton and RMB3,500/ton for incinerationand landfill, respectively. Despite 10% CAGR in treatment fees over the past fewyears, Ms. Liu believes that the fees will be stable in the near future unless thereare significant changes in policy or hazardous waste components. The fees mayeven drop in the longer run as a result of new entrants into the market and alsopotential competition from cement kiln co-treatment, and Ms. Liu believes thatnet profit margin will gradually return to the normalized level of 25-35% due tomore competition in the market in the future. Cement kiln co-treatment primarilyaffects landfill since cement kilns mainly process inorganic waste, and Ms. Liudoes not expect the threat to be significant in East China. Industrial customersusually prepay waste treatment fees.

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