Societe Generale Securities: Maintaining Everbright Environment (00257) “Increase in Wealth” Rating Waste Incineration Leading Cash Flow Improves Significantly

The Zhitong Finance App learned that Societe Generale Securities released a research report stating that it maintains the Everbright Environment (00257) “gain” rating. The bank expects net profit to be HK$42.2, 44.7 and 4.67 billion HK$4.67 billion in 2026-2028, respectively, +7.6%, +5.9%, and +4.4%, calculated based on 44%/45%/47% dividend rates, corresponding to the closing price on July 10, 2026 as 6.4%/7.1%/7.7%, respectively. As a leader in the environmental protection industry, the company's operating business is growing steadily, cost and impairment optimization supports profit growth, abundant cash flow supports increased dividends, and overseas business is expanding a new growth curve. The company has already initiated a listing process that is expected to drive up valuation.

Societe Generale Securities's main views are as follows:

Global waste incineration leader, profit structure optimization, continuous improvement of free cash flow

By the end of 2025, the company operated 196 waste-to-energy projects, 162 sewage treatment projects, and a waste-to-power generation production capacity of 163,000 tons/day. It is the largest environmental protection enterprise in China and the world's largest waste-to-energy investment operator. It holds the comprehensive development of Everbright Green Environmental Protection (69.70%) and Everbright Water (72.87%), and biomass, hazardous waste, and water services. In 2025, the company's net profit to mother increased 16.3% year-on-year to HK$3,927 billion, and the share of construction revenue fell to about 10%, and operating and financial revenue reached 89%, contributing steady benefits from operating operations; free cash flow reached HK$8.5 billion, dividend rate of HK$0.27 per share, payout ratio of 42.3%, +0.5pct year on year. As the peak of the company's capital expenditure has passed and operating cash flow continues to improve, there is a basis for further improvement in future dividend levels.

Waste incineration is located in economically developed regions. The peak capital expenditure period has passed, and overseas projects are expanding a new growth curve

As China's “14th Five-Year Plan” waste incineration capacity construction target was exceeded, the compound annual growth rate of the company's production capacity fell from 31% in 2017-2021 to 5.2% in 2021-2025. By the end of 2025, the company's environmentally friendly energy sector's waste incineration production capacity was 140,300 tons/day, of which the Jiangsu/Shandong/Hunan/Zhejiang/Henan/Guangdong projects accounted for 23%/17%/9%/7%/6%. In 2025, the company accelerated internationalization, set up representative offices in Vietnam, Indonesia and Central Asia, and successfully obtained 2 1,500 tons/day waste-to-energy projects in Uzbekistan. The bank estimates that the capital IRR can reach about 11.0%. Environmental protection infrastructure construction in overseas emerging markets is lagging behind. Most countries in Southeast Asia and Central Asia have long relied on landfill and open dumping. Among them, Uzbek/Indonesia's waste incineration treatment production capacity is expected to reach 384/230,000 tons/day, and the company is expected to continue to obtain overseas projects with mature experience in equipment manufacturing and project operation.

Due to the decline in national subsidies, garbage disposal fees have increased or made up for the decline in yield, and the new business format has opened up room for revenue growth

For waste incineration projects that have declined in state supplements, waste disposal fees have been raised or made up for the decline in yield, and new business formats such as heating, IDC direct supply, and green certificate transactions have opened up room for revenue growth. The bank estimates that the standard project capital IRR = 13.55% under the assumption of electricity costs of 0.65 yuan and 80 yuan/ton garbage disposal fee within 280 kilowatts of electricity; the IRR of the national subsidy falls to 10.47%. At this time, if the garbage disposal fee is raised by 21 yuan to 101 yuan, the capital IRR will return to 13.15%. In 2016-2024, the garbage disposal fee for new projects in China was raised from 55 yuan/ton to 118 yuan/ton. Inventory projects can also negotiate an increase in garbage disposal fees to guarantee project yield. In 2024 and 2025, the company each had 2 projects to raise garbage disposal fees. If the project is heated according to a 20% ratio, assuming a steam price of 150 yuan/ton, the capital IRR can be raised to 14.95%. In addition, new business formats such as IDC direct supply and green certificate transactions are expected to increase revenue from declining subsidies.

Biomass operations have improved, and hazardous waste impairment has decreased

The scale of the company's biomass investment has slowed down, focusing on the transformation and upgrading of existing heating and new business exploration. The compound annual growth rate of biomass/waste treatment volume was -2.9%/6.6% respectively in 2022 and 2025, but the gas supply increased from 2.41 million tons to 4.69 million tons, with an average annual compound growth rate of 24.8%; the first biomass natural gas project (annual output of 10 million square meters) in 2025 has already started construction, and the biomass sugar production project has been completed. The hazardous solid waste treatment business confirmed a depreciation of HK$530 million in 2025, down from HK$1.17 billion in 2024, and current investment has been drastically reduced. Construction revenue for the green environmental protection business fell 65% and 60% year-on-year to HK$230 million in 2024 and 2025, and the expansion of new projects is cautious in the future.

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