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Thermal power environmental feast or will end the enterprise should seize the opportunity
Environmental protection stocks have been on a roll, with policy support, performance growth, and soaring share prices. Once seen as a booming sector with limitless potential, the recent news from listed companies suggests that the environmental protection "feast" may be coming to an end.
**Haze Days Record**
On Sunday, the Central Meteorological Observatory reported that Beijing had issued a yellow alert for smog for three consecutive days, while many cities across China experienced heavy haze. According to a recent press conference by the Chinese Meteorological Agency, this year saw an average of 4.7 smoggy days nationwide — the highest since records began in 1961.
The Ministry of Environmental Protection recently issued a notice, urging strict measures for air pollution control during winter 2013. It emphasized controlling coal-related pollution, deepening non-point source pollution management, enhancing industrial emissions control, and strengthening regulations on vehicle emissions.
**Strong Performance in Air Pollution Control Stocks**
After last week's strong performance, CLP Yuanda opened higher and closed at a daily high in early trading. The company is a key player in air pollution control, and other environmental firms like Guodian Fresh, Sanhe Environmental, and Lanke High-tech also saw gains of over 5%. More than 15 stocks rose by more than 3%, driven by the momentum in the environmental sector. For instance, Xingrong Investment, a sewage treatment company, jumped 8.63% the previous day.
**Outstanding Performance of Environmental Companies**
Li Xinping, an analyst at Rixin Securities, noted that with frequent smog events, opportunities in desulfurization, denitrification, and tail gas treatment are growing. Meanwhile, thermal power and coal sectors face pressure. From quarterly reports, companies involved in air management, especially those in desulfurization and denitrification, have shown significant performance improvements. The annual report outlook is also positive, fueling market optimism.
According to Shenwan data, the environmental engineering and service sector has risen 60.49% this year, outperforming all other industries. Broader environmental concepts have also surged by 58.11%.
CETC Yuanda’s stock price increased nearly 40% in October, despite a 30.55% drop in operating income in the first nine months of 2013. However, net profit reached 146 million yuan, up 99.34% year-on-year. A company representative attributed the growth to a surge in sales of denitrification catalysts used mainly in thermal power plants.
Dai Liping from China Power Yuanda said that thermal power is the main focus of air pollution control. The company is the leading supplier of catalysts for desulfurization and denitrification. In the first half of this year, it sold 8,110 cubic meters of denitrification catalysts, generating 62.04 million yuan in profit — a 717.39% increase compared to the same period last year, accounting for 48.44% of its total first-half profit.
**The End of the Environmental Feasting Era**
Chen Jianhui, a leader at Longjing Environmental Securities, noted that this year’s orders were strong due to the government’s requirement for thermal power companies to complete environmental upgrades by July next year. Many companies are rushing to secure contracts now.
However, Chen believes that the peak for thermal power desulfurization and denitrification equipment will soon pass. He predicts an inflection point around the following year, with demand dropping significantly. These devices are essentially “one-time†investments, often lasting over ten years. Without continuous tightening of environmental standards, future investment from thermal power companies will be limited.
“We are pushing hard to secure more orders now,†Chen said, acknowledging that current demand remains strong.
Dai Liping added that policy support has been the biggest driver for the environmental industry. While the sector has grown rapidly, especially in air pollution control, once the demand stabilizes, the purchase of environmental equipment will slow down. For companies that rely on long-term equipment, this means the end of high-growth periods. In the future, profits will come more from operations and maintenance, with operating companies capturing the largest share. Additionally, the demand for consumables like denitrification catalysts will remain stable until new technologies emerge, ensuring long-term profitability for related companies.
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shcommon
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