Under the guidance of the European Green Agreement, the European Union promulgated the EU Climate Law in 2021 to clarify the goal of "reducing carbon emissions by 55% in 2030 compared with 1990 and achieving carbon neutrality by 2050". Then, it proposed a package of legislative p

(Producer/Author: GF Securities, Guo Peng, Xu Jie)

1. Europe's "dual carbon" efforts have been strengthened, and the demand potential of bio-aerospace coal is outstanding

(I) Europe's "dual carbon" policies continue to be strengthened, among which transportation emission reduction is the top priority

Europe's "dual carbon" policies continue to be strengthened, and the proportion of renewable energy continues to be strengthened. Under the guidance of the European Green Agreement, the "European Climate Law" issued in 2021, the EU promulgated the EU Climate Law in 2021 to clarify the goal of "reducing carbon emissions by 55% in 2030 compared with 1990, and achieving carbon neutrality in by 2050". Then, the "fit for 55" package of legislative proposals (including revising existing laws and formulating new bills) and policy proposals are proposed to provide a legal basis and effective path to achieve the above goals; in June this year, Europe has initiated the legislative process for 8 proposals. We expect that with the promotion of the "fit for 55" plan, the requirements for carbon reduction in in more industries will rise to the legislative level, and a new round of carbon reduction actions with a wider scale and deeper impact in the EU will approach.

Emission reduction in the transportation field is the top priority, and more than ten relevant laws are being promoted, and biofuels are one of the ways to achieve emission reduction. According to CEADs, the proportion of carbon emissions in Europe in the transportation sector is significantly higher than that in China, with the proportion of carbon emissions in Europe in 2019 reaching 28% (only 9% in China during the same period). Under the high emission ratio, more than ten emission reduction bills related to land transportation, aviation and ships in Europe are also accelerating. Biodiesel (including bioaerospace coal) is a type of green clean energy, and it is clearly mentioned in the Chongduo legislative proposals, and the potential of related industries is worth paying attention to.

(II) Aviation field: multi-dimensional support for bioaero coal applications, market potential reaches 43 million tons/year

mandatory addition + tightening of carbon quota + tax incentives, and the EU supports bioaero coal applications in multiple dimensions. According to , the European Commission and the official website, the European level has promoted the legislation of a number of bills to accelerate the promotion of bioaerospace coal: (1) The "Sustainable Aviation Fuel" bill clearly defines the mandatory addition ratio of bioaerospace fuels in the future; (2) The "Aviation Carbon Trading" system clearly states that the total amount of carbon quotas and free quotas in the aviation field will be significantly reduced, prompting enterprises to use clean energy such as bioaerospace coal to achieve emission reduction; (3) Member States are required to mandatory reduction of tax rates for bioaerospace coal.

Method 1—Clearly the mandatory addition ratio: the proportion of bio-aircraft coal added in 2050 will reach 63%, corresponding to the potential demand for European bio-aircraft coal exceeding 43 million tons/year. The "Sustainable Aviation Fuels" Act (ReFuelEu Aviation) clearly states that bioaerospace coal is an important means to reduce emissions in the aviation sector in the next few decades. The proportion of sustainable aviation biofuels (biological aviation coal) will reach 2% in 2025 and 63% in 2050. Referring to the EU's use of 68.54 million tons of aviation fuel in 2019 before the epidemic, the maximum increase ratio of 63% is expected, the corresponding demand potential of bio-aircraft coal exceeds 43 million tons/year. The Sustainable Aviation Fuels Act is currently in the draft stage of the ordinance.

Method 2——Carbon quota tightening: Continuously reduce the total amount of quotas and the proportion of free quotas in the aviation field. According to the requirements of the "Aviation Carbon Trading System" (Revision of EU TIS as regards): (1) The subsequent decline in carbon quotas in the aviation sector will increase from 2.2%/year to 4.2%/year; (2) The free quota ratio in 2027 will be 0%, and all carbon quotas will participate in the auction; (3) For international flights, corresponding emission reduction indicators can be obtained through the use of bio-coal burning and other means.

Method 3—Tax Rate Preference: Member States require compulsory reduction and exemption of tax rates for bio-aerospace coal. According to the Energy Taxation Directive, member states need to mandatory exemption of taxes for clean energy production activities in the fields of aviation and ship transportation, and the bio-aerospace coal rate falls within the scope of tax exemption. On the other hand, tax rate reductions can also be optionally available for energy methods that use biofuels to generate electricity. At present, the "Energy Tax Directive" has been passed, and the European Commission proposed that it is in the stage of drafting and amending the bill.

(III) Domestic aviation emission reduction task is arduous, and the subsequent potential of bioaerospace coal can also be expected to be expected to continue to increase China's biofuel policy, and the domestic biodiesel industry will steadily advance in the "dual carbon" era.Although China has previously established a basic national policy of "not competing for food with others", considering the pressure of emission reduction in the "dual carbon" era and its alignment with overseas emission reduction systems (for example, the EU is advancing legislation, and all subsequent international flights to Europe need to implement EU fuel standards), my country's development of biofuels mainly based on biodiesel and bioaerospace coal is also a general trend.

China's aviation kerosene consumption in 2019 reached 30 million tons, and the theoretical replacement potential of bio-aero coal is outstanding. According to Wind data statistics, my country's aviation kerosene consumption increased from 14 million tons in 2010 to 30.36 million tons in 2019. According to the forward addition ratio of 63% in Europe, the corresponding bio-aircraft coal market potential reached 19.13 million tons. In addition, the consumption of diesel oil on land surface transportation is nearly 100 million tons, and traditional biodiesel also has broad prospects for addition.

Sinopec launched the first large-scale trial production of bio-aerospace coal in my country, and the consumption scale of gutter oil reached 100,000 tons/year. According to the official website of Sinopec , on June 28, my country's first bio-aerospace coal industrial plant used gutter oil as raw material in Zhenhai refining of Sinopec Zhenhai to produce bio-aerospace coal for the first time, and my country's large-scale production of bio-aerospace coal has taken an important step. As early as May this year, Sinopec's HEFA route bioaerospace coal products have passed the Roundtable on Sustainable Biomaterials certification, becoming the first company in Asia to obtain the certification, and the domestic bioaerospace coal industry is about to start.

2. "Petroleum stocks" in the biodiesel field, with both volume and price rising and opening up the economic cycle

(I) Kitchen profits are linked to waste oil prices and oil extraction rates, and rising energy prices increase profits

BOT model ensures the long-term supply potential of waste oil and fat. Catering companies are "oil stocks" in the biodiesel field. As a regular army in my country's waste oil disposal, kitchen treatment enterprises have obtained long-term and exclusive treatment qualifications for kitchen waste within the contract coverage by signing an BOT agreement with the government, and can stably extract waste oil and fat from kitchen waste. They are an important resource party in the biodiesel industry and can be regarded as the "petroleum stock" in the biodiesel field. Revenue is linked to waste oil prices and oil extraction rates, but the cost is rigid and stable, and profits have increased significantly while oil prices continue to rise. From the perspective of income structure, the income of the kitchen project includes two major incomes: treatment fees and waste oil sales. During the stable operation period, the project's production capacity, capacity utilization rate, and treatment fee indicators are relatively stable. Changes in the selling price of waste oil and fat and the increase in oil extraction rate are the core reasons for the growth of revenue. There is no raw material procurement cost at the cost side, mainly focusing on transportation services, operation management, labor costs and depreciation and amortization, all of which are rigid expenses and are relatively stable during the operation period.

Biodiesel and waste oil prices have nearly doubled since 2021, and cumulative exports from January to July this year increased by 35% and 53% year-on-year. Catering and kitchen processing companies ushered in a golden period of development. According to the export data statistics from Wind, biodiesel and UCO have maintained a high volume trend from 2022 to now, and the cumulative export volume of biodiesel and UCO from January to July 2022 increased by 35% and 53% year-on-year respectively. From January 21 to July 2222, the average export prices of biodiesel and UCO in my country increased by 85% and 120% respectively. The expected subsequent prices remain high due to rising energy prices, insufficient raw material supply and strong demand.

calculating at the historical low price of waste oils of 4,000 yuan/ton (tax included), the level of the kitchen project IRR can reach 7.2%. Taking the IRR model of a typical kitchen project as an example, after making assumptions on many indicators such as ton investment amount, processing fee, and oil extraction rate. Under the calculation of the average historical price of 4,000 yuan/ton of waste oil, the project IRR can reach 7.17%, which is a reasonable level in the environmental protection industry. The rise in waste oil prices has significantly increased profits, and the IRR level will rise to 23.3% at the price of 10,000 yuan/ton (tax included). Due to fixed costs, fluctuations in the average sales price of waste oil will directly affect the project's profits. According to sensitivity calculations, the price of waste oil and grease has increased from a historical low of 4,000 yuan/ton to the current 10,000 yuan/ton. The profit of waste oil and grease to be increased from 1,391 yuan/ton to 7,034 yuan/ton, and the net profit margin level has increased from 13% to 41%. If the price of waste oil and grease for the project in the entire life cycle of remains at 10,000 yuan/ton, the project IRR level will be increased from 7.2% to 23.3%.

(II) Standardized collection of waste oil is a trend, and it is important to increase the oil rate of the catering project. It is important to increase the potential of the oil improvement rate of the kitchen project. Since 2010, my country's efforts to rectify gutter oil have been continuously strengthened, and relevant policies have been frequently issued: Based on the frequent occurrence of vicious incidents of gutter oil returning to the dining table, the Food Supervision Bureau issued the "Urgent Notice on Strictly Preventing the Inflow of "gutter oil" into the Catering Services" to kick off the prelude of gutter oil rectification. In 2012, the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security jointly issued the "Notice on Severely Punishing "gutter oil" Criminal Activities in accordance with the Law", which will further improve the rectification level. The official has clarified the important position of kitchen projects in rectifying gutter oil chaos, and the standardized collection of waste oil is the general trend: In 2010, the National Development and Reform Commission issued the "Notice on Organizing and Carrying out the Pilot Work of Resource Utilization and Harmless Treatment of Urban Kitchen Waste", officially launching the pilot construction of my country's kitchen projects. In the policy, the National Development and Reform Commission clarifies the significance of the kitchen project, "the illegal behavior of using 'gutter oil' to process edible oil from the source... It is also a fundamental measure to solve the food safety problems caused by kitchen waste." Since then, the application work for pilot cities for kitchen projects has been continuously promoted. As of now, more than 100 cities have been successfully recognized, and the increase in kitchen projects is also accelerating the standardized collection of waste oils and fats.

Jiangsu as an example: Standardization of kitchen waste treatment accelerates waste oil collection, and the oil yield rate of Changzhou project can be as high as 8.4%. As the country's leading province for waste incineration and kitchen treatment construction, Jiangsu issued the " Jiangsu Province Kitchen Waste Management Measures " in 2011, and launched the peak period of kitchen project construction: from 2015 to 2021, the number of new kitchen projects in the province has been added. As of the latest kitchen project production capacity scale has reached 5,180 tons/day. Among them, Changzhou, Suzhou , and Nantong cities have become key pilot cities in the country. Taking the Changzhou project as an example, relying on the innovation of the national leading treatment model of "full process treatment of food residues and waste oils", combined with severe crackdown on illegal phenomena such as illegal dumping of waste oils and individual oil vendors. As of the end of November 2020, the garbage disposal volume of Changzhou kitchen projects reached 362.7 tons/day, gutter oil was 21.57 tons/day, and old oil was 8.99 tons/day, with the oil yield rate as high as 8.4%, far higher than the industry level. Jiaao Environmental Protection is a proof: With the increase in the volume and oil-elevation rate of kitchen projects in Jiangsu, Zhejiang and Shanghai, the increase in oil-elevation rate of kitchen projects in Jiangsu, Zhejiang and Shanghai, the increase in oil-elevation rate, kitchen enterprises have become the main raw material suppliers. According to the 2021 "Investor Relations Activity Record Table" of Jiaao Environmental Protection, relying on the supervision and rectification of the kitchen waste and waste oil industries in Jiangsu, Zhejiang and Shanghai, the scale of local kitchen treatment companies has significantly increased. In the company's procurement structure, as a biodiesel processing enterprise with waste oil and grease in Jiangsu, Zhejiang and Shanghai as the main procurement site, the company disclosed that "in 2017, more than 90% of the company provided raw materials to individual operators, and currently nearly half of them were provided to kitchen waste disposal companies, with more transparent quantity and price."

oil extraction rate level has increased from 4% to 8%, and the IRR will increase from 7.2% to 18.0% at the UCO price of 4,000 yuan/ton. The improvement of oil extraction rate is also significant for the improvement of the profitability of kitchen projects. We expect that referring to the outstanding management of kitchen waste oil and fat in pilot cities such as Jiangsu, Zhejiang and Shanghai, the rectification and control of kitchen waste and waste oil is launched nationwide in the future. The corresponding oil extraction rate of kitchen projects is expected to continue to improve, promoting the further improvement of the profitability of assets.

(III) The catering industry has entered the first year of investment peak. The investment potential of the "14th Five-Year Plan" reached 100 billion

The largest catering project in history has entered the "procurement stage", and the number of industry bidding has increased by 3 times from January to May 2022. According to the Ministry of Finance’s PP project library, the Shenzhen Bao'an Kitchen Waste PPP project with a total investment of 630 million yuan and a total design scale of 1,550 tons per day has entered the "procurement stage" and is the largest investment in kitchen project in history. According to statistics from the environmental protection circle, from January to May 2022, a total of 71 kitchen waste projects have been released nationwide (a 3-fold increase compared with the same period last year, which is 73% of the total released total last year). The total treatment scale is estimated to be about 4,092 tons/day, with an expected investment of nearly 2.3 billion yuan. With the improvement of the industry system and the steady advancement of pilot city construction, the national kitchen projects have ushered in a peak period of high volume.

is expected to reach 171 million tons/year in 2025, and the corresponding capacity potential demand will reach 470,000 tons/day. According to National Bureau of Statistics data, as of 2019, the national catering industry revenue was 4.67 trillion yuan, an increase of 11.6% from 3.23 trillion yuan in 2015 before the 13th Five-Year Plan, with an average annual growth of 10%. Excluding the impact of the epidemic, the booming development of the catering industry has also led to the continuous increase in the production of kitchen waste. According to the Forward Industry Research Institute, the production of kitchen waste in my country in 2020 has reached 128 million tons/year, and it is expected that the production of kitchen waste in the country will reach 171 million tons/year in 2025, corresponding to the daily production of kitchen waste reaching 468,400 tons/day, which means that the "14th Five-Year Plan" kitchen project has a production capacity of 470,000 tons/day.

The planned kitchen production capacity at the end of the 13th Five-Year Plan was only 64,600 tons per day, and the investment potential in the 14th Five-Year Plan reached 100 billion under the low penetration rate of . Since there is no official statistics on the latest kitchen production capacity, based on the five-year construction plan issued by the State Council, the "12th Five-Year Plan" and "13th Five-Year Plan" respectively required the construction of kitchen processing capacity of 302 and 34,400 tons/day, with an investment of 109 and 18.4 billion yuan. As of the end of the 13th Five-Year Plan, the cumulative planned construction capacity of the kitchen has reached 64,600 tons/day, but compared with the 350,000 tons/day production in 2020, the penetration rate is only 18.5%. According to the 50% penetration rate of kitchen waste in 2025, the corresponding new production capacity is 46.84*50%-6.46=169,600 tons/day. Based on the investment amount of 600,000 yuan/ton/day ton, the investment space for kitchen projects during the 14th Five-Year Plan period will reach 101.8 billion yuan.

3. The leading kitchen industry has outstanding mergers and acquisitions and business advantages, solid waste enterprises accumulate strength and develop

(I) The industry's competitive landscape is scattered, and the differentiated growth ideas of kitchen leaders and solid waste enterprises

The industry's competitive landscape is scattered, and kitchen leaders and solid waste enterprises are the main two types of players. From the perspective of market share, according to our calculations, the market share of the kitchen operation capacity of the eight mainstream listed companies is only 30%, and the industry's competitive landscape is relatively scattered. Beiqing Huaneng, Everbright Environment , Weiming Environmental Protection, Wangneng Environment and Hanlan Environment all have more than 3,800 tons per day in hand production capacity. Among them, Beiqing Huaneng is the leader in kitchen processing, while Everbright Environment, Weiming Environmental Protection, Wangneng Environment and Hanlan Environment are all national solid waste leaders mainly based on garbage incineration. The kitchen business is only part of its integrated layout of its solid waste industry chain.

kitchen leader (Beiqing Huaneng): Focus on mergers and acquisitions of existing high-quality assets, and outstanding advantages in refined operations. Based on the current scattered industry structure (a private enterprise operates 200~400 tons/day kitchen projects with a widespread phenomenon) and strong willingness to sell existing projects (as oil prices rise, private enterprises currently have large demands for cash out), the company has formed a growth model that focuses on rapid "mergers and acquisitions" of high-quality projects in provincial capitals and first-tier cities. And as the only listed company in China that mainly focuses on the resource utilization of kitchen waste, the company has obvious advantages in front-end waste oil collection and control, processing end process optimization and back-end sales channels. After the acquisition of , some assets have significantly improved the oil extraction rate and profitability.

solid waste leader: garbage incineration is the main business, and the kitchen project is coordinated with point-to-face, focusing on the "incremental market". Compared with Beiqing Huaneng focusing on the acquisition and acquisition of 's existing assets, solid waste leaders such as Hanlan Environment prefer to use waste incineration projects to "take point to surface" to create an integrated business model of solid waste industry chain. Relying on solid waste enterprises to work in the project site for many years, it can efficiently connect with various solid waste resources other than domestic waste dry waste, and is one of the preferred entities for the "incineration +" project undertaking projects such as kitchen and sanitation.

(II) Beiqing Huaneng Energy: The "inventory market" mergers and acquisitions and integration are accelerated, creating a national waste oil platform

The industry is in the period of accelerated mergers and acquisitions and integration, with a significant advantage in the first-mover and acquisitions, and the Beiqing Huaneng Energy doubles its production capacity in half a year. Combined with the scattered layout of kitchen projects, many small kitchen projects operate in the hands of independent private enterprises. From 2019 to 2021, the total scale of the company's kitchen processing on-hand was 980 tons/day, 980 tons/day and 2030 tons/day, respectively, maintaining rapid growth. In 2022, the company further increased its efforts in new signing, mergers and acquisitions, adding new projects such as Datong , Yinchuan and Wuhan, with a total new production capacity of 1,500 tons/day.As of the latest, the company's hand capacity has reached 4,330 tons/day, doubled from 2,030 tons/day at the end of 2021. In addition, the company plans to strive to achieve 6,000 to 8,000 tons/day in 2022 and 8,000 to 10,000 tons/day in 2023, and its potential remains outstanding.

The advantage of cooking oil collection for kitchen enterprises lies in their national layout, and accelerate the casting of national oil collection network through mergers and acquisitions of high-quality projects in provincial capitals and first-tier cities. The company's current service scope of the kitchen project has covered the whole country, and has invested and operated kitchen waste disposal and resource utilization projects in many large-scale cities such as Jinan, Qingdao , Yantai , Taiyuan, Xiangtan , Wuhan, Lanzhou, Datong, Hefei and other regions. Within the authorized area, the company enjoys exclusive franchise operating rights (including the only kitchen and waste oil collection, transportation and disposal license). At the same time, this model has also enabled the company to obtain the advantages of raw material guarantee, income and long-term stable operation. With the significant advantages of self-produced + purchased waste oils, the company is accelerating the casting of a national oil collection network.

(III) Solid waste enterprises: The "incremental market" has outstanding advantages, "incineration +" opens the growth ceiling

Everbright Environmental Protection In 2022, the scale of the kitchen winning bids led the industry, and the bidding advantages of leading solid waste enterprises are significant. According to the environmental protection circle, from January to May 2022, Everbright Environment won three kitchen waste treatment projects, ranking first among the winning companies, with the total budget amount exceeding 600 million yuan (in the same period in 2021, Everbright Environment won three projects, and the number of bids also ranked first among the industry). At the same time, the Jiangnan Bioenergy Reuse Center, which has the largest investment this year, is also led by Light Environment . For such super-level kitchen treatment projects, solid waste enterprises rely on collaborative disposal and resource integration capabilities, and have significant bidding advantages, and are the core players of the "incremental market" of kitchens.

The kitchen project has become increasingly prominent in its profit-enhancing effect on solid waste leading companies. Hanlan Environment's kitchen business revenue in 2021 increased by 67% year-on-year. Taking Hanlan Environment as an example, as of the end of 2021, the company's production capacity of kitchens in transportation was 1,180 tons/day, and the capacity under construction and construction was 1,889 tons/day, while the scale of the waste incineration business has reached 34,200 tons/day. However, benefiting from the increased production capacity and the significant increase in waste oil prices, the company's catering business achieved a revenue of 128 million yuan (+67% year-on-year), which was higher than the 37% year-on-year growth rate of waste incineration, and its performance elasticity was more prominent.

(This article is for reference only and does not represent any of our investment advice. If you need to use relevant information, please refer to the original text of the report.)

selected report source: [Future Think Tank]. system error