Incidents:
On the evening of April 24, 2023, Sainz announced its performance announcement: revenue of 548 million yuan (yoy +42.5%) in 2022, net profit of 66.23 million yuan (yoy +48.4%); revenue of 102 million yuan (yoy +26.7%) in the first quarter of 2023, and net profit of 13.4 million yuan (yoy +58.3%). The 2022 annual report and the results for the first quarter of 2023 are in line with our expectations.
Key points of investment:
Revenue grew at a high rate in 2022, with revenue seasonality in the first quarter of 2023: (1) High growth rate of comprehensive plans: 2022 comprehensive management plan revenue was 244 million yuan (yoy +56.4%), pharmaceutical revenue of 97 million yuan (yoy +2.8%), and operating service revenue of 195 million yuan (yoy +68.6%). The number and amount of comprehensive business orders signed has increased dramatically, and good news about the development of the new energy market has spread frequently. Project contracts have been signed with various new energy companies to provide support for the business; the operation service business segment has grown rapidly, and the number of operating sites has expanded to 22; and pharmaceutical product revenue has reached sales targets. We judge that the high growth rate of program revenue in 2022 may continue to drive high growth in pharmaceuticals and operational services in 2023. (2) Revenue is confirmed seasonally, and the revenue share for the first quarter is relatively low: the company's heavy metal pollution prevention program business revenue has a certain seasonality, and the inspection work generally completes revenue and profit realization in the fourth quarter. Revenue in the first quarter of 2021 and 2022 accounted for 14.6% and 17.4% of the whole year. (3) Related transactions (unaudited): The estimated amount of related transactions with Zijin Mining and its controlling companies in 2022 is 213 million yuan, and the actual cumulative number of related party transactions that occurred in 2022 is 141 million yuan; in 2023, related transactions between Synes and Zijin Mining and its controlled related companies are expected to be 350 million yuan.
Profitability increased steadily: (1) Gross profit margin and profit margin remained stable: gross margin in 2022 was 30.7%, net interest rate was 12.91%; gross margin for the first quarter of 2023 was 30.5%, and net interest rate was 14.3%. (2) Decrease in cost rate: sales expense ratio was 5.33% in 2022, up 0.3 pct year on year, 2023Q1 was 5.79%, down 1.51 pct year on year; management fee rate was 11.34% in 2022, down 2.82 pct year on year; 2023Q1 was 12.78%, down 2.69 pct year on year; financial expense ratio 2022/2023Q1 was -0.19%/-0.91% respectively; R&D expense ratio in 2022 was 5.48%, down 1.08pct year on year. 2023Q1 was 5.39%, down 1.45 pct from the previous year.
The 2023 restricted stock incentive plan was approved by the shareholders' meeting and the board of directors: revenue growth expectations for 2025 are gradually becoming clear. The revenue for 2023 is not less than 800 million yuan, the cumulative revenue for 2023-2024 is not less than 1.9 billion yuan, and the cumulative revenue for 2023-2025 is not less than 3.4 billion yuan. Based on the annual minimum assessment standard, the corresponding revenue for 2023-2025 is 8/11/15 billion yuan.
Core logic: (1) Core technology reduces hazardous waste treatment costs for enterprises. Compared with traditional methods and processes, one of the company's core technologies, the “Waste Acid Resource Treatment Series Technology” can reduce hazardous waste emissions by more than 90% for non-ferrous metal smelters and reduce comprehensive treatment costs by 40%-70%. Environmental protection expenditure is a rigid expenditure for non-ferrous metallurgy companies, and new technology paths that are more economical and environmentally friendly in the back-end may receive more attention from enterprises. (2) Backed by Zijin Mining, the strength of shareholders is strong. Zifeng (Xiamen), a subsidiary of Zijin Mining, has an investment shareholding ratio of 21.22% (2023Q1).
Backed by Zijin Mining's shareholders' resource advantages, Zijin's environmental protection expenses have provided the company with increased revenue, and Zijin's overseas mine environmental protection projects may also become a platform for the company to go abroad to showcase its business. (3) The proportion of back-end pharmaceutical operation services has increased, and the recycling business has opened up room for future growth. In the future, the company will focus on the field of heavy metal pollution prevention and control, continue to develop technology research and innovation, optimize technological process design, expand the scope of application, and continue to meet customer needs; accelerate business restructuring and increase the proportion of operation and service business; and actively arrange resource recovery to achieve high-quality and sustainable development. With the improvement of the company's process technology, the company's business scale has grown steadily, and the development direction has shifted from simple pollution prevention and control to balancing pollution control and resource recycling.
Profit forecasting and investment ratings: We expect revenue of $85/ 122/1.65 billion for 2023-2025, net profit of $1.09/1.82/249 million (taking into account equity incentive expenses), and the corresponding PE is 24/14/10 times, maintaining the “buy” rating.
Risk warning: Relaxation of environmental protection policies and regulations. The downturn in the macro environment has led to a slowdown in capital expenditure for downstream customers, slow repayment of accounts receivable, new technology paths to replace the company's technology path, related transactions reduce the overall company's gross profit margin, and liquidity risks in the secondary market.