Recently, environmental protection listed companies have successively released their 2017 performance annual reports. Although more than 70% of the companies are expecting good news, the phenomenon of performance differentiation has become more prominent. In addition, the "small scattered" pattern of the entire environmental protection industry is still prominent.

The "Thirteenth Five-Year" Energy Conservation and Environmental Protection Industry Development Plan proposes to increase industrial concentration, cultivate a group of large-scale energy conservation and environmental protection enterprise groups with international competitiveness, and cultivate more than 100 backbone enterprises in key areas of energy conservation and environmental protection industries. From the perspective of experts and industry insiders, no matter from the perspective of policy orientation or the development of the industry itself, it is still the general trend to accelerate mergers and reorganizations in the environmental protection industry, and there will still be a wave of mergers and acquisitions in the future.

The performance of the annual report is improving, but the industry differentiation is intensifying

Combing the disclosed 2017 annual report and performance forecast, it is found that during the reporting period, there were 126 companies with pre-announced performance, accounting for more than 70%; the number of companies whose net profit is expected to double year-on-year is as high as 46, showing that the overall development of the environmental protection industry is good. The profits of related listed companies continued to grow significantly.

Judging from the published annual reports, the net profits of leading companies such as Sanju Environmental Protection, Origin Water, and Oriental Garden have all exceeded 2 billion yuan. Among them, Sanju Environmental Protection achieved a net profit of 2.539 billion yuan, a year-on-year increase of 57.02%; Origin Water achieved a net profit of 2.509 billion yuan, a year-on-year increase of 35.95%; Oriental Garden's net profit was 2.178 billion yuan, a year-on-year increase of 68.13%.

However, it is worth noting that the performance differentiation of the entire environmental protection sector has intensified. Yishida, Feida Environmental Protection, Jinmembrane Technology, etc. suffered serious losses, and both net profit and year-on-year profit growth were red lights. According to the research report of securities companies, the proportion of companies with a net profit of 0-50 million has decreased, and the proportion of companies with a net profit of more than 50 million and less than 0 has increased.

Among the listed companies in the A-share environmental protection sector, the 2017 annual report disclosed that the 16 companies with total assets greater than 5 billion yuan had a growth rate of 25.3% and 21.6% in total profit and net profit attributable to the parent company, while the total assets were less than 5 billion yuan. The growth rates of total profit and net profit attributable to the parent company of the 18 listed companies are only 8.2% and 10.7% respectively, and the performance performance of large and small companies varies greatly.

The industry's "small scattered" pattern still exists

The "small and scattered" pattern of the environmental protection industry is still prominent. From the perspective of the hazardous waste industry, the data shows that there are nearly 3,000 hazardous waste enterprises in the country, the average qualification scale of licensed enterprises is less than 30,000 tons per year, and the market share of the top ten leading enterprises is even less than 10%. The overall appearance is scattered, small and weak. "At present, the technical equipment of the hazardous waste industry is weak, and the capacity utilization rate is less than 30%, showing a downward trend overall." Li Yongpeng, president of Dongjiang Environmental Protection Co., Ltd., previously told the "Economic Information Daily" reporter.

The sanitation industry is similarly fragmented. According to the real-time tracking information of the E20 data center, there are about 5,000 sanitation companies in the industry, but only one or two hundred companies have initially formed a scale.

Xue Tao, executive partner of E20 Environment and executive director of the research institute, pointed out in an interview with a reporter from the "Economic Information Daily" that the concentration of the environmental protection industry is relatively low, and there are about 50,000 upstream and downstream enterprises. He specifically analyzed that for the field of industrial pollution control, on the one hand, there are numerous categories, scattered parties, and complex technologies, which have brought about the problems of low concentration and "small" and "scattered" environmental protection enterprises; on the other hand, industrial The upgrading of sewage management is not yet complete, and zero tolerance for excessive sewage discharge has not been achieved, which has exacerbated the situation of "small", "scattered" and especially "chaos" in the industry.

"In the field of municipal public utilities (mainly referring to the field of government payment), the operating entities of municipal environmental protection facilities in thousands of counties and cities are naturally scattered." Xue Tao further pointed out that the franchise reform in 2003 promoted the increase of industry concentration. The data shows that the top ten social capital now account for more than 20% of the country's overall water affairs, and the proportion of new waste incineration projects as high as 70% is allocated by the top ten. However, the situation of "small", "scattered" or even "chaotic" is still obvious in the upstream equipment enterprises supporting investment and operation enterprises and other subdivisions that focus on engineering (rural environmental governance, soil remediation, etc.).

Mergers and acquisitions will continue to deepen

According to the "Thirteenth Five-Year Plan" Energy Conservation and Environmental Protection Industry Development Plan, the energy conservation and environmental protection industry will become a pillar industry of the national economy by 2020, emphasizing the need to increase industrial concentration and enhance industrial competitiveness. And it is clearly stated that "to cultivate a group of large-scale energy-saving and environmental protection enterprise groups with international competitiveness, and cultivate more than 100 backbone enterprises in key areas of energy-saving and environmental protection industries."

In 2017, the environmental protection industry continued to expand the market and extend the industrial chain through horizontal and vertical mergers and acquisitions. Intra-industry, cross-industry and cross-border mergers and acquisitions have become a norm. Data show that in 2017, there were 86 mergers and acquisitions in the national environmental protection industry, involving an amount of 38.5 billion yuan. In the eyes of experts and industry insiders, this kind of mergers and acquisitions will continue to deepen, and a new round of mergers and acquisitions is expected to set off again.

Xue Tao pointed out that due to the low ratio of fixed assets in the field of environmental protection, the process of increasing industry concentration will be faster than other fields. Much of the expansion in this field is done through mergers and acquisitions, and mergers and acquisitions will remain hot in the next few years. Many small-scale environmental sanitation companies have low competitiveness in the process of marketization and will be squeezed out or merged in large numbers in the next three years.

Guan Qingyou, president of Rushi Financial Research Institute and chief economist, also believes that the differentiation and reorganization of the environmental protection industry will continue to intensify, and the scale of some leading companies and their proportion in the entire industry will increase.

"Strong-weak mergers and strong-strong mergers among operating companies are benign and sustainable trends, and mergers and acquisitions will be an unabated theme for a long time." Xue Tao said that small and medium-sized technology companies also have cases of mergers and acquisitions by large companies. But more is the self-renewal and metabolism of many small and medium-sized enterprises. Mergers and acquisitions by excellent companies will occasionally occur, but it will be more common for direct competition to squeeze out inferior companies.

However, in the opinion of experts, mergers and acquisitions in the environmental protection industry cannot be generalized. Chen Junhao, senior investment director of Fosun Group's major project department, said in an interview with a reporter from "Economic Information Daily" that the vast majority of central enterprises engaged in the environmental protection industry are subsidiaries. Although it is theoretically feasible, due to the influence of management system, assessment, personnel appointment and removal, etc., it should not happen on a large scale, and the effect of this administrative reorganization may not be ideal.

"At the current stage of development, it is still necessary to encourage state-owned capital to enter the field of environmental protection. The key is to have a fair and reasonable market competition environment, so that enterprises with real R&D strength, market development and project operation capabilities can occupy more external market shares through marketization. .” Chen Junhao said.

From the perspective of international experience, such as Japan and the United States, decentralized municipal infrastructure operators are common. Even the "French duo" like Veolia and Suez will be surrounded by many small and medium-sized environmental protection technology companies to provide supporting services and technological innovation. Xue Tao believes that the future structure of the domestic environmental protection industry will continue to increase in terms of industrial and municipal concentration from an operational point of view, but various technical subdivisions will leave enough room for development of a large number of small and medium-sized enterprises. Considering the inherent characteristics and requirements of technological innovation and environmental protection subdivision, in this part of the area, "small scattered" is not the fundamental problem, but "small scattered" is. The key to solving the "chaos" still needs to gradually put in place various regulations based on the effects of environmental governance.