Early Layout Of The Environmental Protection Unit &Nbsp; Wait For The Good Policy.

In May, the environmental protection industry won the Shanghai and Shenzhen 300 index, and it could still be configured in June.

The environmental protection industry is a strategic emerging industry supported by the state. It is a sunrise plate that investors can take a long-term view. We believe that we should invest in the starting point of the rapid growth of the industry, arrange the investment target ahead of schedule before the new support policy comes out, wait for the emergence of the catalytic agent in the industry, and maintain the "recommended" investment rating of the environmental protection industry.

Catalyzer

The development plan of energy conservation and environmental protection industry is a catalyst to reflect the investment value of environmental protection industry.

We think that the possibility of issuing documents in 2010 is very great. This year is a better time to invest in the environmental protection industry.

China has entered the middle and later stage of industrialization. From the experience of foreign countries, the government attaches importance to environmental protection and massive investment generally occurs in the latter stage of industrialization.

The environmental protection industry is a public utility. Government investment and policy support are the main driving force for the development of the environmental protection industry.

China's sewage treatment rate and sewage treatment price still have much room for improvement. We expect that the annual growth rate of sewage treatment industry in the future will be about 20%.

According to the segmentation industry, solid waste disposal is the most potential subdivision industry in the environmental protection industry. It will enter a high-speed development period in the next 5 years. Solid waste infrastructure builders and equipment suppliers will benefit first, and the average annual growth rate of the industry will reach at least 30%.

Urban sewage treatment has entered a mature stage of development. The expansion of scale will be the main driving force for water business operators. The domestic sewage treatment rate and sewage treatment price still have much room for improvement. The average annual growth rate of the industry is about 20%.

The technology and technology of exhaust gas desulphurization are becoming more and more mature, and the market space of the industry begins to expand. At the same time, denitration is expected to develop into the next "desulfurization industry". The average annual growth rate of the industry is about 10%.

Valuation

From the perspective of relative valuation, the average dynamic price earnings ratio of the environmental protection sector in Europe and the United States in 2009 is about 20 times, while the average dynamic price earnings ratio of the domestic environmental protection sector has reached 50 times.

The reason for the gap between the domestic and foreign environmental protection industry is that the environmental protection industry in Europe and the United States is already close to saturation, and the growth is very slow. The domestic environmental protection industry has only developed in recent years, and the capacity of the industry is far from meeting the market demand, and the growth rate is faster.

The opportunity to enhance the value of key companies will come from new investment projects and rising water prices, which can increase profitability in the adjustment of water prices.

But it should be noted that the environmental protection industry is a public utility, and the profit is strictly controlled by the state. Only a relatively reasonable profit can be obtained. It is difficult to achieve the excess profit level.

Based on the weak cyclical and high growth nature of the environmental protection industry, we give the industry 40 times price earnings ratio and 20 times EV/EBITDA valuation level in 2010.

Although the value of intra industry growth has been reflected in the stock price, industry integration and asset injection will bring about the expected growth and return of shareholders. The industry valuation level is still in a reasonable range.

Investment suggestion

As the valuation center of the whole market has declined and the valuation pressure of the environmental protection industry has become increasingly apparent, we suggest that investors choose the investment target from the following three aspects: first, companies with greater elasticity of performance, which may break through the limitation of valuation space; two, companies driven by subject matter and those that can stimulate market hot spots; three, companies with stable growth and less influence on the macro and market environment.

June investment portfolio: we chose Sander environment (000826), *ST cleaning (000598) and South China Sea Development (600323).

Reasons for investment: Sander environment - solid waste disposal performance entered the full release period, and the strategic cooperation agreement signed with the parent company is expected to bring great leap forward development. *ST cleaning - the completion of major asset reorganization, the sewage treatment business will expand rapidly; the development of the South China Sea - the future performance will remain at least 15% stable growth, and the current valuation is relatively low.