GF Securities: Environmental Protection Industry's Performance Steady Restores Nuggets Computing Power and New Opportunities for Resource Utilization

The Zhitong Finance App learned that Guangfa Securities released a research report saying that the 2026H1 environmental protection sector achieved operating income of 189.9 billion yuan (+10.7% YoY), net profit of 16.8 billion yuan (+7.1% YoY), and net profit after deducting non-return to mother of 15.7 billion yuan (+13.4% YoY). The sector's profit has maintained positive growth, and the institutional allocation is almost historically low. Solid waste, undervalued water, high dividends, and outstanding cash flow values. Collaboration in computing and electricity, recycling of slag, and green steam open up incremental space. AI transformation and metal recycling have become the most prominent growth lines in the sector, focusing on computing power leasing, AI recycling, and precious metals purification. The bank recommended focusing on the industry's high growth direction and undervalued operating assets.

The main views of GF Securities are as follows:

2026H1 sector performance continues to recover, cash flow has improved markedly, and institutional allocation is close to a historically low level

The 2026H1 environmental protection sector achieved operating income of 189.9 billion yuan (+10.7% YoY), net profit of 16.8 billion yuan (YoY +7.1%), and net profit after deducting non-return to mother of 15.7 billion yuan (YoY +13.4%). Among them, net profit without return to mother increased 4.1% year-on-year in 2026Q2, and sector profit maintained positive growth. Structurally, solid waste and water companies withheld net profit of 10 billion yuan (-0.7% year over year), and operating assets remained resilient; other companies withheld net profit of 5.8 billion yuan (+50.1% year over year). The increase mainly came from the hazardous waste recycling sector. In 2026H1, net profit without return to mother reached 3.17 billion yuan (+186.0% year over year). Cash flow improvements were more prominent. Net operating cash flow from the sector increased 32.3% year on year to 16.2 billion yuan, net investment cash flow narrowed 39.6% year over year to 19.7 billion yuan, and simple free cash flow improved from -20.4 billion yuan in the same period last year to -3.5 billion yuan. Meanwhile, environmental equity fund allocation accounted for only 0.12% at the end of 2026Q2, which is close to the lowest level since 2013.

Solid waste, undervalued water, high dividends, and outstanding cash flow values. Collaboration in computing and electricity, recycling of slag, and green steam open up incremental space

The 2026H1 waste incineration and water sector achieved operating income of 279/35.2 billion yuan (+5.7%/+4.4%) and net profit after deducting non-return to mother of 55,4.5 billion yuan (-0.3%/-1.2% year over year), respectively, and the core operations remained steady. Following the peak of investment, the simple free cash flow of the waste incineration sector changed from -5.2 billion yuan to 4.5 billion yuan, and the water sector improved from -5.3 billion yuan to 1.9 billion yuan. Of these, Water achieved positive free cash flow of about 2.7 billion yuan in the 2026Q2 single quarter. The dividend increase logic continues to be implemented. From 2021 to 2025, the average dividend ratio of 27 typical solid waste water service high-dividend sample stocks increased from 29.5% to 45.0%, and the dividend rate increased from 3.17% to 4.13%. According to Wind's consensus expectation that mainstream companies will be about 7 to 15 times PE in 2026. In terms of growth, nine listed solid waste companies have already disclosed the collaborative layout of computing power, Wangneng Environmental has signed the first computing power service contract, Shengyuan Environmental has promoted the Nan'an Green Intelligent Computing Center, Hanlan Environment, Junxin Co., Ltd. and others to accelerate the exploration of green electricity and computing power scenarios; repricing of slag, self-built resource production capacity, and steam heating emissions are also expected to increase tons of garbage profits and improve the repayment structure.

AI transformation and metal recycling have become the most prominent growth lines in the sector, focusing on computing power leasing, AI recycling, and precious metal purification

(1) Computing power leasing: Yingfeng Environmental's 2026H1 smart cloud computing business achieved revenue of 686 million yuan (+3436% year over year), of which computing power rental revenue was 674 million yuan, accounting for 8.6% of the company's revenue. The computing power business went from concept verification to the stage of real contribution; Xianhe Environmental Protection, Chenfeng Technology, etc. are also promoting the “green electricity+energy storage+intelligent computing” layout. (2) AI recycling: In March 2026, a new version of the Waste Electrical and Electronic Products Handling Specification was officially implemented. Artificial intelligence servers were included in the scope of control for the first time. Leaders with dismantling qualifications, data destruction capabilities, and first-hand recycling channels are expected to be the first to benefit. (3) Metal recycling: Higher prices for metals such as copper, gold, silver, bismuth, and tellurium combined with the release of production capacity to promote the centralized release of hazardous waste recycling profits. The net profit of High Energy Environment and Zhefu Holdings 2026H1 increased by 103.4% and 139.5%, respectively.

It is recommended to focus on: (1) High growth direction: Yingfeng Environment, Dadi Ocean, High Energy Environment, Zhejiang Fu Holdings, Langkun Technology, Yingke Renewable, Chenfeng Technology, etc.; (2) undervalued operating assets: Hanlan Environmental, Junxin, Yongxing Co., Ltd., Green Power, Everbright Environment, Shanghai Industrial Holdings, Guangdong Investment, Hongcheng Environment, etc.

Risk Alerts

Orders and new business fall short of expectations; risk of policy changes; risk of low dividend expectations.