Description of the event
Sainz released its 2022 report and 2023 quarterly report. It achieved revenue of 548 million yuan in 2022, YoY +42.5%; the net profit of the mother was 66 million yuan, YoY +48.4%; after deducting non-performance of 506 million yuan, YoY +47.41%. 2023Q1 revenue was 102 million yuan, YoY +26.6%; net profit of the mother was 13 million yuan, YoY +58.3%; after deducting net profit of the non-return mother was 11 million yuan, YoY +105.7%.
Incident comments
The continued rise in the prosperity of the heavy metal pollution control industry is driving high revenue growth. By business, in 2022, the company achieved comprehensive solutions of 245 million yuan, +56.4% year on year; achieved operating service revenue of 195 million yuan, +68.6% year on year; pharmaceutical sales revenue remained stable at 97 million yuan, +2.81% year on year. The increase in comprehensive solutions is mainly due to the tightening of emission standards for heavy metal pollution, the “Opinions on Further Strengthening the Prevention and Control of Heavy Metal Pollution” (issued by the Ministry of Ecology and Environment in 2022), the third round of central environmental protection inspections, and the promotion and implementation of the “Notice on Carrying Out the Third National Soil Survey” (issued by the State Council in February 2022), and the rise in industry sentiment. The increase in operating revenue is presumed to be driven by integrated solutions.
The increase in net profit attributable to the mother in 2022 A and 2023Q1 was higher than the increase in revenue mainly due to a decrease in the cost rate during the period. The cost rate decreased by 2.96 pct to 16.5% during the 2022 A period, of which the management cost rate was -1.75pct to 5.86%, mainly due to high revenue growth, the proportion of employee remuneration and intermediary agency service fees decreased; the R&D cost rate was -1.08pct to 5.48%, mainly due to high revenue growth. The cost rate was reduced by 4.16 pct to 17.7% during the 2023Q1 period, of which the sales expenses rate was -1.51pct to 5.79%, the management expenses rate was reduced by 1.23 pct to 7.40%, and the R&D cost rate was reduced by 1.46 pct to 5.39%. Net cash flow from operating activities in 2023A was $26 million, a year-on-year decrease of 68.54%, mainly due to an increase in corporate solution orders. The increase in procurement volume was accompanied by an increase in advance payments for new construction projects. Net cash flow from operating activities in 2023Q1 was 19 million yuan (generally Q1 was negative), mainly due to strengthened receivables management during the reporting period, an increase in sales repayments, and a year-on-year decrease in purchase payment cash. The number and amount of orders signed for the company's comprehensive solution business projects increased dramatically, and the new energy market was developed, project contracts were signed with various new energy companies, and the overseas layout was further promoted; the number of operation service sites expanded to 22. Judging from the customer structure, Zijin Mining is the largest customer, with a related transaction amount of 141 million yuan, +95.9% year on year, accounting for 25.8%: of which 73.52 million yuan was operating services, +73.4% year on year; comprehensive solutions for the prevention and control of heavy metal pollution were 65.64 million yuan, up 125.0% year on year; pharmaceutical sales were 2.15 million yuan, +5101.2% year on year. The company added a number of mining operations in Zijin and signed a contract with Norton Jintian Co., Ltd. in Australia to promote overseas expansion; The company signed a contract for heavy metal pollution prevention and control solutions of 37.37 million yuan.
New technology, new model, or contribution to increased performance. 1) New technology: The company's prospectus R&D project lays out waste acid treatment and metal material recovery in the new energy industry to help achieve recycling of metals such as copper, lithium, cobalt, nickel, etc.; 2) New model: According to the prospectus, the company achieves targeted adsorption of rare metals such as rhenium in sewage waste water through technology research and development, and recovers valuable resources such as sodium chloride, sodium sulfide, sodium sulfate, sulfuric acid, hydrochloric acid and hydrofluoric acid in the future.
Profit forecast and valuation: In 2023, the copper, lead and zinc industry began implementing special emission limits. Environmental inspections, soil surveys, and the Jiangxi heavy metals incident all contributed to the release of market space in the industry. The company is a leading enterprise in heavy metal pollution control and is expected to benefit.
The company's net profit from 2023-2025 is estimated to be 1.04/157/207 million yuan, compared to +57.3%/50.8%/31.6%, and PE valuation 25.4x/16.9x/12.8x, maintaining the “buy” rating.
Risk warning
1. The risk of iterative technology upgrades; 2. The risk of sustainability of operating service projects.