China Jinjiang Environment Tackles Growing Garbage Crisis

Date: August 23, 2018

kopi-C: the Company brew
China Jinjiang Environment
Mkt Cap S$M 653
Last Price S$ 0.455
% Price Change YTD -33.6
% Price Chg Div Adj YTD -26.7
% Price Chg Div Adj [1Y] -37.6
% Price Chg vs 12M High -45.8
% Price Chg vs 12M Low 2.2
% Div Yld 11.1
% ROE 13.1
P/E (x) 4.6
P/B (x) 0.6
Source: SGX StockFacts (11 July 2018)
It might not be a stretch to say that bridge – one of the world’s most popular card games – is in Wang Yuanluo’s blood.An accomplished bridge enthusiast, the Chairman of SGX-listed China Jinjiang Environment Holding Co Ltd hones her management skills by playing the tactical game, which involves partnerships, auctions, and contracts.A well-known motto of the game – “The most important single skill any bridge player can possess is to be a good partner” – underscores the critical role that teamwork plays in any organisation, said Wang, who started playing bridge nearly four decades ago through her father’s influence.

“It’s not only about assessing the risks and making the right decisions, but also working with your team to reach a common goal,” she noted.

“In bridge, because one weak link can drag the entire team down, it’s important for all members to pull together and capitalise on existing strengths, while minimising weaknesses. This is a key tenet in managing any business and its employees.”

Wang, 60, is one of the pioneering executives who built up Jinjiang Environment. She held the position of Group Chief Executive Officer for 13 years, before taking on the role of Chairman from 2016. Prior to joining Jinjiang Environment in 2004 as a director, she was involved in the management of Hangzhou Jinjiang Group’s green energy business, and has chalked up more than 20 years of industry experience.

The graduate from Zhejiang Sci-Tech University holds a bachelor’s degree in engineering in silk weaving, and has a higher diploma in enterprise management from Hong Kong Polytechnic University. She is also a Senior Economist certified by the Zhejiang Province Department of Personnel. Last year, Wang clinched the EY Entrepreneur of the Year 2017 China Award in the clean technology category.

Sense of Mission

“When I first entered the waste treatment industry, I approached it like any other enterprise, but over the last 23 years, I’ve come to view it as a social responsibility and a mission,” she said.

“What drives me is that the business is not just a business. There is a societal and environmental purpose behind it, which makes it extremely meaningful. Without that sense of mission, I wouldn’t have been able to stay in this industry for so many years, or grow the company to what it is today.”

Jinjiang Environment, a forerunner in China’s waste-to-energy (WTE) industry, is one of the country’s largest private operators in terms of waste treatment capacity.

Listed on SGX Mainboard in August 2016, the Group runs 21 WTE facilities in 12 provinces, autonomous regions, and centrally administered municipalities in China, with a current waste treatment capacity of 30,980 tonnes per day.

The WTE business involves the construction, operation and/or ownership of plants that treat municipal solid waste. Jinjiang Environment typically enters into long-term service concession agreements with local governments, as well as offers a range of tailored energy-saving and residual heat utilisation solutions under its Energy Management Contracting (EMC) division.

The long-term potential of the WTE business is undeniable, Wang said. “It’s a very stable industry – China and the Southeast Asian countries have very large populations, there’s rubbish every day, and those volumes are continuing to grow.”

There is an increasing need to treat waste in China and other developing markets due to the environmental fallout, she noted.

“As about two-thirds of cities in China are surrounded by tonnes of rubbish, this is a pressing problem. Other developing markets tend to bury their waste in landfills, and as a result, there are harmful effects on the environment and human lives from the resulting pollution.”

Boosting Expertise

Jinjiang Environment has a current market capitalisation of about S$650 million. Between 2014 and 2017, group revenues have expanded by a compounded annual growth rate (CAGR) of 28.2%, while net attributable profits have risen by a CAGR of 18.6%. Gross profit margin has averaged 40.9% over this period.

The Group’s balance sheet remains sturdy – operating cash flows rose to 617 million yuan as at 31 December 2017, from 523 million yuan in end-2016. Cash and cash equivalents stood at 714.9 million yuan as at 31 March 2018, compared with 574.5 million yuan a year ago.

Looking ahead, Jinjiang Environment aims to boost its leadership position in China by broadening its domestic footprint and upgrading its technology offerings, Wang said.

Apart from the 21 WTE facilities that are currently operating, the Group has two plants under construction and expansion, and another 21 in the preparation stage. Eight facilities are being upgraded, while seven other projects are focused on waste recycling. The majority of the facilities are on a Build-Own-Operate (BOO) model, with the rest on a Build-Operate-Transfer (BOT) model.

It plans to accelerate the pace of technical upgrading by introducing advanced pre-treatment technology from Europe, and combining it with its own independent research and development (R&D).

“We’re integrating advanced technologies from Germany and Finland with our existing solutions, so the Group can offer the best of European know-how through customised offerings, but at a much lower cost,” Wang said.

Last March, it partnered Zhejiang University to set up the National Engineering Laboratory for Waste Incineration Technology and Equipment – an important base that integrates innovation resources, boosts technology development efforts, and grooms talent.

‘Engulfed in Waste’

The Chinese government has also prioritised the issue of waste treatment, given the country’s rapid urbanisation. In 2017, China’s urban waste collection was more than 200 million tonnes, highlighting the phenomenon of “cities engulfed in waste”, Wang said.

According to the 13th Five-Year Plan for the Construction of Detoxification Treatment Facilities for Municipal Solid Waste, China’s total waste incineration capacity will reach a target of 591,000 tonnes per day at the end of 2020, up 151% year-on-year and reflecting a CAGR of 20%.

Beyond China, Jinjiang Environment has set its sights on overseas markets along the “One Belt, One Road” (OBOR) zone. It will focus, in particular, on Southeast Asian countries – including Indonesia, Vietnam, Malaysia and Singapore – that have waste characteristics similar to those of China.

“We have a dedicated business division working on our overseas expansion strategy, and it is conducting research on the feasibility of potential WTE projects in Indonesia and Vietnam,” said Wang.

Last year, the Group made its successful entry into Singapore’s waste disposal market, with the planned construction and operation of a Mechanical Biological Treatment (MBT) project. This facility will have a service concession period of 20 years and daily waste treatment capacity of 500 tonnes per day.

Jinjiang Environment also secured three WTE projects in India last year, which will commence construction this year. In April, it made its first foray into the Latin American market, following an agreement to acquire a 51% stake in a Brazilian WTE company.

“It’s basically unchartered waters for us, but Brazil, with zero waste treatment facilities and landfills as its only method of waste disposal, offers good growth potential,” she noted, adding that Brazil has an annual waste output of as much as 83 million tonnes.

According to the World Bank, the world’s cities generated 1.3 billion tonnes of solid waste per year in 2012, amounting to a footprint of 1.2 kilograms per person per day. Following rapid population growth and urbanisation, municipal waste generation is expected to rise to 2.2 billion tonnes by 2025.

No Zero-Sum Game

When Jinjiang Environment’s operating projects, as well as those under construction and in preparatory stages – both at home and abroad – are fully completed, its total waste treatment capacity is expected to rise to about 66,086 tonnes per day. It is estimated to achieve this target by end-2019.

Despite the industry’s bright prospects, challenges abound, Wang admitted. “Waste characteristics are always changing, and our technology needs to evolve in line with those changes. We also need to meet changing emission and environmental protection standards across the different markets.”

Competitive pressures will continue to rise as the Chinese government tightens environmental supervision efforts. There are also financial and resource issues to tackle.

“We need to manage our risks well when we expand overseas – such as adopting strict due diligence, being prudent in our cashflow management, selecting strong local partners, and grooming local talent.”

This is where Wang’s spirit of perseverance comes into play.

“Teamwork and determination are critical – we need to be united when dealing with difficult situations and solving day-to-day problems. Otherwise, we will not be able to move forward,” said Wang, who hails from a family of academics and has a 33-year-old daughter.

And nothing is more important than justice and kindness, she added, pointing to the Chinese character正 (zheng), or righteousness, and 容 (rong), which refers to a magnanimous spirit.

“The two key principles that have guided me through the decades, and helped me build up the business, are compassion and collaboration,” she noted.

“We should always have a big heart, cultivate the spirit of forgiveness, and constantly look for opportunities to partner or collaborate with others – life is not a zero-sum game.”

Financial Results
Year ended 31 December (RMB ‘000) 2017 2016 2015 2014
Revenue 2,715,076 2,631,888 1,588,139 1,269,657
Gross profit 1,034,622 1,049,405 745,873 620,880
Profit attributable to owners 601,206 597,583 404,609 328,973

Quarter ended 31 March (RMB ‘000) 1Q 2018 1Q 2017 % Change
Revenue 754,868 557,579 35.4
Gross profit 210,611 237,688 -11.4
Profit attributable to owners 100,847 127,445 -20.9
Source: Company data
Brokers’ Ratings Price Chart
Buys 1
Holds 0
Sells 0
PT (S$) 0.85
Souce: SGX StockFacts
  • The Group will continue to develop new pipeline projects and grow its footprint of WTE facilities in China. In 1Q 2018, the Group established project companies in Bayannaoer, Inner Mongolia, and Wuhan, Hubei Province. It currently has 21 projects in the preparatory stage.
  • Construction of its three projects in India are expected to begin in 1H 2018, and when completed, will add 3,271 tonnes/day and 55 MW/day to the Group’s total installed waste treatment capacity and installed electricity generation capacity respectively.
  • In January 2018, the Group set up a wholly owned subsidiary in Germany, which focuses on integrating proven waste dehydration and sorting technologies from Europe with its own circulating fluidised bed (CFB) technology. This provides the Group with a foothold in Europe’s environmental protection market.
  • In April 2018, the Group agreed to pay approximately RMB71.6 million for a 51% stake in a project company in Brazil, which will construct and operate the country’s first-ever WTE project and PPP waste treatment project, with a planned waste treatment capacity of 825 tonnes/day.
  • Taking into consideration all the projects (including recycling projects) under construction, to be constructed or expanded, as well as new potential projects – both in China and overseas – the Group’s total installed waste treatment capacity is expected to reach approximately 65,086 tonnes/day when they are completed.
  • Upgrading and expansion work on eight of the Group’s WTE facilities is continuing, and is slated for completion in 2019. The reduced capacity and higher costs brought about by the Upgrading Project are expected to continue to impacting the Group’s financial performance until close to end of the year.
  • The Group is in the process of exploring and diversifying its funding options to meet its expansion needs.
China Jinjiang Environment Holding Co Ltd
Established in 1998 and listed on SGX in 2016, Jinjiang Environment is the first private waste-to-energy (WTE) operator in the People’s Republic of China, with the largest waste treatment capacity in operation. It operates 20 WTE facilities in 12 provinces, autonomous regions and centrally administered municipalities in China, and has an additional three WTE facilities under construction, and 21 WTE facilities in the preparatory stage. The facilities in operation have a total installed waste treatment capacity of 28,280 tonnes/day. The estimated total installed waste treatment capacity of all the WTE facilities, when fully completed and acquired (including expansion and upgrading), will be approximately 65,086 tonnes/day.

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For the quarter ended 31 March 2018 financial results, click here.
First published on SGX website on 13 July 2018

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Text: Jennifer LH Tan
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kopi-C is a regular column on SGX’s My Gateway website that features C-level executives of leading companies listed on the Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.

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