Core views:
With a rich R&D heritage and the help of Zijin Mining, it is a leader in new technologies for the disposal of hazardous heavy metal waste. The company incubated the biopharmaceutical R&D team of Academician Chai Liyuan of Central South University in 2009, and Zijin Mining took a stake in 2016 and became the second largest shareholder. Unlike the traditional treatment method of “dissolving acid wastewater into hazardous waste and then making it harmful/recyclable”, the company's pre-resource recycling process first extracts rare and precious metals, acids, etc. from the sewage acid wastewater by installing a device at the back end of the metal smelting production line (recovery rate over 90%), reducing the amount of hazardous waste by more than 90%, helping customers “obtain the resource value of heavy metals” + “reduce hazardous waste disposal costs”. The company maintained a high growth trend: revenue of 548 million yuan in 2022 (+42.5% year on year) and net profit of the mother was 66 million yuan (+48.4% year on year).
Stricter policies require innovation in governance technology, and the release of 20 billion dollars of space can be expected. Since 2022, heavy metal pollution prevention and control policies have been tightened. The types of heavy metal elements have been increased, thallium and antimony have been increased, emission restrictions have been tightened, and “reduction and resource utilization” have been emphasized. If traditional processes such as the lime neutralization method continue, they will not be able to meet the higher requirements of the New Deal, while environmental protection standards may have negative effects such as discontinuation of production/large fines. Technological innovation is the general trend. We estimate that the EPC investment for sewage wastewater treatment in the non-ferrous metals smelting market has exceeded 4 billion yuan, and the operating side scale has reached 17.3 billion yuan/year.
A pioneer in the blue ocean market, the 2022-2025 compound revenue growth target is close to 40%. Currently, 90% of the heavy metal pollution control stock market is still traditional technology, but in the new expansion and technical improvement projects of the non-ferrous industry in 2021, the company's new technology market share reached 62.3%, demonstrating its competitive strength. According to the 2023 stock incentive plan, the company plans to award 1,853,500 shares at a price of 1393 yuan/share, covering 121 chairmen, executives, and core technical employees. According to the incentive target, the company's compound revenue growth target for 2022-2025 is 39.6%, and confidence in the company's development is evident.
Profit forecasts and investment recommendations. Net profit attributable to the mother for 23-25 is estimated to be $1.08/154/211 million, and PE is 22.8/15.9/11.7 times. The company has technical and customer advantages, and there is broad scope for replacement. It was given a “buy” rating for 30xPE in '23, corresponding to a reasonable value of 34.1 yuan/share.
Risk warning. Risk of changes in industry policies, risk of technology iteration, risk of loss of technical personnel, etc.