Dongwu Securities: National reimbursements accelerate and strengthen cash flow value, and the waste incineration industry can be expected to grow overseas

The Zhitong Finance App learned that Dongwu Securities released a research report saying that the improvement in operating cash flow brought about by the acceleration of national compensation recycling will further strengthen the cash flow value of the environmental protection sector. The Renewable Energy Subsidy Fund may reach balance of payments around 2025. After that, stock arrears are expected to be gradually settled, and national reimbursement payments will be a normalized improvement. The dividend+ROE logic in the waste incineration sector continues to be implemented, and the acceleration of national reimbursement payments strengthens cash flow value+ new overseas growth can be expected.

The main views of Dongwu Securities are as follows:

Pay attention to the logic behind the acceleration of national subsidies. The dividend value of the waste incineration sector stems from falling capital expenditure combined with improving operating cash flow to improve two-wheel drive

The improvement in free cash flow and dividend capacity in the waste incineration sector since 2023 is mainly driven by a decline in capital expenditure. The bank previously reported quantifying the sector's dividend potential from the perspective of declining capital expenditure. When the sector's capital expenditure falls to a maintenance level (accounting for 1.0%/1.5%/2% of total assets), it corresponds to the 24-year dividend potential of 125%, 114%, and 102%. National supplement recycling accelerated significantly in 2025Q3. What is more important now is that the bank estimates that the renewable energy subsidy fund may reach an inflection point in the balance of income and expenditure in 2025. After that, as the green power subsidy expires, income exceeds expenditure, and it can gradually settle the stock arrears while guaranteeing the country's compensation payments for that year. As a result, national reimbursements may usher in normalized improvements, supporting an increase in the sector's net operating cash flow and strengthening the value of cash flow. Based on the decline in capital expenditure (assuming a decrease of 1.5% of total assets), the repayment rate of the superimposed country was raised from 40% to 100%. Further estimates suggest that the sector's dividend potential will increase from 114% to 141%.

The average national supplement account period for waste incineration companies is stable, and national reimbursement payments accelerated significantly in 25Q3

1) Current status of national payment arrears: The increase in arrears is slowing down, and the account period is maintained for about 2 years. Take the green power and bright blue environment of waste incineration enterprises with nationwide coverage as an example. The growth rate of national reimbursement arrears slowed in 24, and according to theoretical estimates, the national reimbursement period remained at around 2 years. 2) Marginal changes in national supplements: Remarkably accelerated in 25Q3 payments, improving cash flow & credit impairment recovery. From July to August '25, Everbright Environment's biomass country's reimbursement payment was 2,064 billion yuan, which has surpassed the 24-year level. In the 25Q1-3, Han Lan Guo reimbursed 245 million yuan, and Junxin Guo made up 81 million yuan. The reimbursements from countries such as Sanfeng, Wangneng, and Lvdong all accelerated markedly. The 25Q3 waste incineration sector had a net operating cash flow of 633 million yuan in a single quarter, +59% year over year and +52% month over month. The 25Q3 waste incineration sector accrued credit impairment losses of 41 million yuan in a single quarter, -44% year-on-year, a significant reversal of the trend of +41% year-on-year in 25Q1 and +16% year-on-year in 25Q2. Among them, Sanfeng, Shengyuan, and Lvdong 25Q3 deposit credit impairment losses were recovered. 3) National reimbursement rate: The national reimbursement rate has increased significantly at the center. The bank estimates that the current national reimbursement rate for 25Q1-3 enterprises is about 40-199%, with an average value of about 89%, which is a significant increase from the 24-year average of 39%.

Renewable energy subsidy funds may meet balance of payments, and stock arrears are expected to be gradually settled

The revenue of the Renewable Energy Development Fund is increasing year by year, and the expenditure limit has been reached. 1) On the revenue side, the additional electricity price for renewable energy on the user side remained unchanged at 0.019 yuan/kilowatt-hour after 2016. As the electricity consumption of the whole society increased steadily, the fund's revenue scale increased. 2) On the expenditure side, the installation of new energy sources has accelerated, the benchmark electricity price has dropped year by year to achieve full parity in 2021, and the fund's annual expenditure has reached the upper limit. The bank expects that around 2025, the income and expenditure of the Renewable Energy Development Fund will be balanced for the current year. The cumulative historical arrears for 2025 are expected to reach a maximum value of 435.5 billion yuan. As subsidies for green power projects expire and are gradually withdrawn, the spending pressure will decrease year by year. Revenue will exceed expenses, and the country will gradually clear its reserves to make up the arrears. Considering the payment of stock subsidy arrears from fund surpluses, the bank expects that historical countries will also naturally resolve their arrears by around 2036.

Dividend potential estimation — driven by declining capital expenditure and accelerated recovery of national subsidies

On the basis of estimating dividend potential under steady state capital expenditure in the previous period, consider the acceleration of the current repayment rate of national subsidies, and measure the upward space for the sector's dividend potential. The bank assumes 1) that the capital value of the waste incineration sector falls to the maintenance level during steady operation (neutral assumption that maintenance capital expenditure accounts for 1.5% of total assets), and 2) considers that the waste incineration country's reimbursement rate increases from 40% to 100%. Then the waste incineration sector's dividend potential will be raised from 114% to 141%, and the dividend value will be further strengthened.

Risk warning: National supplement default/maturity risk, processing fee repayment falling short of expectations, rising capital expenditure, etc.