하나은행 하나금융연구소

The waste industry is sensitive to business cycle, and being a public good, it poses high barriers to new entrants.

● With rising construction waste generation since the early 2000s, there has been a steady growth in waste generation in Korea, which is treated by burial, incineration, recycling, and ocean dumping.

- The waste treatment industry is closely linked to business cycle and GDP growth rate.

● The waste treatment industry has several layers of collection and transport, intermediary treatment and final treatment, with the last being a oligopoly market protected by high entry barriers and where service providers can expect high profit.

● on the other hand, intermediary treatment business poses comparatively lower barriers in terms of legal requirement and initial investment, facing intense competition which is further fueled by recent government measures to promote recycling.

Waste generation is expected to slightly increase, but demand for final treatment may fall.

● While prolonged slump in the construction sector may lead to low construction waste generation, the overall waste generation will still increase at a rate of 2 to 3% with the economy expected to grow at a sound rate of 4% in 2011.

● Meanwhile, the government efforts to contain waste generation and final treatment as a part of its environmental policy may dampen waste treatment demand.

● Given continued competition, intermediary treatment business is expected to continue to experience the average operating profit margin of 10% or less, and final treatment business will also find it challenging to generate the operating profit margin of over 20% on average, with the capacity for burial sites reaching the limit.

Differentiated credit management and business opportunity assessment are required for service providers planning to expand businesses.

● It is deemed necessary to take conservative credit management for small-scale intermediary treatment businesses with less sound financial structures, and to apply an aggressive credit policy to businesses engaged in treating designated wastes whose generation is on the rise due to regulatory requirements and to businesses which can enjoy cost reduction with vertical integration completed.

● In addition, investment banks may spot new business opportunities in companies attempting to enter new green businesses such as recycling and energy for potential merger and acquisition between service providers operating in different regions, and business diversification.