Inseon ENT Holds Comprehensive Waste Treatment Technology... Reenters Incineration Business

The waste disposal industry has emerged as a "goose that lays golden eggs." As landfill sites are gradually decreasing and waste is increasing, disposal costs are rising daily. Waste increases as industry develops and population grows. The speed of waste increase accelerated due to the rise in single-use product consumption amid the COVID-19 pandemic. On the other hand, securing landfill sites is challenging. With the illegal waste problem worsening, the government strengthened environmental regulations last May. It reinforced the responsibilities of waste generators and transporters and decided to thoroughly conduct suitability inspections of waste disposal businesses at regular intervals. As it becomes difficult for new waste disposal companies to enter the market, existing companies are expected to continue stable growth. Asia Economy analyzes the business capabilities, remaining waste disposal capacity, and financial structure of domestic waste disposal companies Inseon ENT and Zenen Bio to gauge their growth potential.

[Asia Economy Reporter Park Hyungsoo] Inseon ENT has completed vertical integration in the environment and waste sectors. Recently, it expanded its waste disposal capacity by acquiring Paju B&R and Yeongheung Industrial Environment. Expectations for continuous growth through economies of scale are increasing.

◆High Proportion of Construction Waste= Inseon ENT is engaged in the collection, transportation, intermediate treatment, and final disposal of construction waste. Among domestic construction waste companies, it is the only one possessing integrated waste processing technology from scaffolding structure dismantling to construction waste transportation, recycled aggregate production, and waste landfill. The construction waste sector accounts for about 76% of Inseon ENT's total sales.

According to the Ministry of Environment's waste classification, waste is primarily divided into household waste and business waste based on the source and amount of waste generated. Secondarily, business waste is classified into general business waste and designated waste based on toxicity. Thirdly, it is categorized by generation characteristics into business household waste, business emission facility waste, construction waste, medical waste, etc.

The Waste Management Act, effective from May 27 this year, includes obligations for waste generators and strengthened penalties for illegal waste transportation by collection and transportation companies. It holds not only the waste generators but also the transporters accountable if waste is not properly disposed of. Dependence on existing waste disposal companies is expected to increase.

The construction waste disposal industry is significantly affected by the construction market conditions. Costs arise from collecting, transporting, and landfilling waste generated at various construction sites such as new town developments, large apartment complex reconstructions, redevelopment of deteriorated residential areas, demolition or remodeling of urban buildings, roads, and bridges. Inseon ENT crushes and sorts waste using an eco-friendly recycled aggregate production plant, then landfills or incinerates impurities that cannot be recycled. It mainly operates with major local governments, public institutions around Seoul and the metropolitan area, and large domestic construction companies, processing contracted volumes using its own and external transport vehicles. The landfill fee for construction waste at metropolitan landfills increased by 30% last July, from KRW 77,092 per ton to KRW 99,893 per ton.

◆Business Expansion through Aggressive M&A= Inseon ENT acquired 100% stakes in construction waste intermediate treatment company Paju B&R and construction waste intermediate treatment and incineration company Yeongheung Industrial Environment for KRW 23 billion and KRW 53 billion respectively last September. It raised acquisition funds by issuing new shares worth KRW 70 billion to its largest shareholder, IS Dongseo.

By acquiring Paju B&R, it strengthened its position in the metropolitan construction waste intermediate treatment market. The combined operating rate of the construction waste intermediate treatment divisions at the Ilsan headquarters and Sejong branch has already exceeded 100%. With the need for additional expansion, acquiring Paju B&R expanded its treatment capacity. Paju B&R recorded sales of KRW 11.5 billion and operating profit of KRW 1.2 billion last year. With Inseon ENT's sales capabilities and know-how added, sales and profit margins are expected to increase.

Inseon ENT re-entered the incineration business by acquiring Yeongheung Industrial Environment. It had operated an incineration business through its Incheon branch until 2013 but sold the incineration division to strengthen its automobile recycling business. By re-entering the incineration business after seven years, it evolved into a comprehensive waste disposal company capable of handling construction waste, incineration, and landfill. Yeongheung Industrial Environment achieved sales of KRW 24.1 billion and operating profit of KRW 2.7 billion last year. Located in Cheonan, Chungnam, it also processes designated wastes such as waste oil, other waste organic solvents, and waste absorbents besides construction waste.

Researcher Shin Seo-jeong of SK Securities explained, "By acquiring the two companies, annual sales are expected to increase by about KRW 35 billion and operating profit by about KRW 4 billion," adding, "Profit margin improvement is also possible."

With remaining landfill sites decreasing and difficulties in securing new landfill sites due to civil complaints, landfill fees continue to rise steadily. Inseon ENT operates a general waste landfill in Sacheon and a designated waste landfill in Gwangyang. It also secured an additional landfill site of 15,000 pyeong to be used after 2023 by acquiring a 55% stake in Golden Eco. There is also potential to secure an additional 30,000 pyeong site owned by a local government near the Gwangyang landfill.

Inseon ENT recorded KRW 146.6 billion in sales and KRW 35.3 billion in operating profit cumulatively for the third quarter this year, up 8.7% and 88.2% respectively from the same period last year. Its largest shareholder is IS Dongseo, holding a 45.07% stake (20,937,717 shares).