Dinos is a leading manufacturer of plate denitrification catalysts in China. It is the first manufacturer of plate denitrification catalysts in China and the third in the world. It mainly provides services for China's coal-fired power generation industry. According to Frost & Sullivan's report, for the year ending December 31, 2014, (i) in terms of production capacity, the group was the third largest producer of plate denitrification catalysts in China, with a market share of about 17.5%; (ii) in terms of production, the group was the fourth largest producer of plate denitrification catalysts in China, with a production volume of 8,380 cubic meters, with a market share of about 12.6%; and (iii) based on the total revenue calculation of Chinese plate denitrification catalysts, the group is the fourth largest plate denitrification catalyst vendor, Sales revenue was RMB 217.1 million, with a market share of approximately 15.0 %.

We suggest speculative purchasing of this stock

Company advantages

(1) A group of Chinese plate denitrification catalyst manufacturers with a pioneer advantage; (2) the group customizes one-stop denitrification solutions to meet the different needs of customers; (3) has a strong and diverse customer base; (4) has a deep and experienced and stable management team in the denitrification industry.

Industry Overview

The market for denitrification catalysts in China is growing rapidly, and it is expected that the Chinese government will increase its control over nitrogen oxide emissions, which may encourage it to continue to grow. The trend of increasing market share of plate denitrification catalysts is evident. Frost & Sullivan estimates that demand for plate denitrification catalysts will increase from 75,000 cubic meters in 2014 to 171,400 cubic meters in 2019, so the market share of plate denitrification catalysts is expected to increase from 29.7% in 2014 to 44.9% in 2019.

Driven by high demand for denitrification catalysts in coal-fired power plants in China, many companies have entered the denitrification catalyst industry since 2011. As a result, the production capacity of denitrification catalysts has increased markedly over the past few years. According to Frost & Sullivan's report, the total production capacity of nitrification catalysts in China in 2011 was 70,200 cubic meters, compared to 533,500 cubic meters in 2014, with a compound annual growth rate of 96.6%.

Since current production capacity exceeds market demand, Frost & Sullivan anticipates that future production capacity is unlikely to increase significantly. According to Frost & Sullivan's report, it is estimated that the production capacity of denitrification catalysts in China's coal-fired power plants will reach 626,400 cubic meters in 2019.

In 2014, the production of plate denitrification catalysts was 66,600 cubic meters, accounting for 26.2% of the total production of denitrification catalysts in China. Currently, there are fewer than 10 manufacturers of plate denitrification catalysts in China. According to production volume in 2014, the five major producers of plate denitrification catalysts accounted for 96.2% of the market share, indicating that the industry was concentrated. In 2014, Beijing Dinos produced 8,380 cubic meters, with a market share of 12.6%, ranking fourth.

If calculated based on revenue, sales revenue of plate denitrification catalysts in 2014 was approximately RMB 1.5 billion, accounting for 25.9% of the total sales revenue of denitrification catalysts in China. Based on sales revenue in 2014, the five major producers of plate denitrification catalysts accounted for 96.6% of the market share, indicating that the industry was concentrated. In 2014, the sales revenue of Beijing Dinos was RMB 217.1 million, with a market share of 15.0%, ranking fourth.

Profitability and financial figures

Based on historical records for the past 3 years, the Group's revenue increased from RMB 22.5 million in fiscal year 2012 to RMB 217.1 million in fiscal year 2014, with a compound annual growth rate of 210.6%; net profit changed from a loss of RMB 1.4 million in fiscal year 2012 to profit and increased to RMB 73.5 million in fiscal year 2014. The increase in net profit during the track record period was mainly due to an increase in sales orders from new customers, which led to an increase in sales volume of plate denitrification catalysts.

Fundraising purposes

HK$262.4 million (calculated at the mid-sale price of HK$2.50 per share) of the proceeds from this capital raising will be used as follows: Approximately 46% will be used to develop denitrification catalysts for diesel vehicles. The plan is divided into two stages to develop denitrification catalysts for the production of diesel vehicles. The first stage plan began in July 2015, while the second stage plan began in 2017. The first stage is expected to invest approximately RMB 178.6 million, including RMB 53.7 million to purchase equipment and build production lines, RMB 3.0 million to set up testing laboratories, RMB 31.0 million to acquire land, RMB 40.9 million to build a plant, and RMB 50.0 million to purchase raw materials. The second-tier investment is expected to be around RMB 60.0 million, including RMB 45.0 million to purchase equipment and RMB 15.0 million to expand production facilities. It is anticipated that internal funds will be used to pay the difference between the proceeds to be collected and the anticipated expenses; approximately 27% will be used to acquire potential target companies or major raw material suppliers in the industry that will help the group expand its market coverage. As a leader in the plate denitrification catalyst market, the group is determined to expand market share and seize market opportunities through appropriate acquisitions. In addition, the group plan further strengthens cooperative relationships with major suppliers. At the same time, it will also seize opportunities to find acquisitions that will help supplement existing operations, be consistent with group expansion strategies, and increase profits and profits to enhance vertical integration of major raw materials suppliers. As of the last feasibility date, the Group has not set any acquisition agreements or identified any acquisition targets; approximately 10% is used for R&D work in the following areas: (i) developing technology for formulating catalysts to be applied to customers in other industries; (ii) developing know-how to regenerate catalysts; (iii) continuing to develop and sell technology for denitrification catalysts already used; and (iv) advancing the development of nitration decoupling technology for diesel vehicles through its own R&D team; approximately 4% is used for network expansion and sales China and Europe set up regional sales offices. The group plans to set up regional offices in Northeast China, Northwest China, South China and Southwest China by the end of 2015. It also plans to establish an overseas sales network and set up an overseas sales branch by the end of 2015, focusing on expanding product sales in the European market. At the same time, the Group is also committed to introducing products into the Southeast Asian market and is currently looking for potential business partners. As of the last available date, the Group has yet to find business partners; about 3% is mainly for the replacement of Production Line 1. The group plans to add a production line similar to the existing No. 3 production line to replace the No. 1 production line and increase the production capacity of the Gu'an production base. The Group expects to issue a purchase order for the equipment required for the new production line in November 2015. It is expected that the replacement production line will be completed and put into operation by the first quarter of 2016; approximately 10% will be used for working capital and general corporate use.

valuations

According to the prospectus price of HK$2.10 to 2.90, Dinos' historical price-earnings ratio was about 11.7 to 16.2 times; the market account ratio was about 1.06 to 1.25 times. There are also leading players in the plate denitrification catalyst industry in mainland China, such as Datang Nanjing Environmental Technology, Babcock Hitachi (Hangzhou) Environmental Protection Equipment, and Zhejiang Dechuang Environmental Technology, etc., and Tianhe (Baoding) Environmental Engineering, which was listed in Shenzhen in the middle of this year, purchased 60% of the shares by Huaxi Energy (002630.CH), which was listed in Shenzhen in the middle of this year, and plans to bring Tianhe Environment to Hong Kong for listing. Huaxi Energy's current price-earnings ratio is about 61 times, and the market account rate is about 3.4 times. Listed in Hong Kong with a more similar business, Zhejiang Tianjie Environment (1527.HK), a supplier of integrated air pollution prevention and control solutions, had a historical price-earnings ratio of about 14.2 times and a market account ratio of about 4.3 times; while Pan Asia Environmental Protection (556.HK), which has smoke treatment products and equipment in the business, has a historical price-earnings ratio of about 23.5 times and a market account ratio of about 0.55 times; Dinos' valuation is reasonable. The mainland's determination to implement environmental protection policies is unquestionable, and the issue of air pollution is given more attention due to severe smog and haze; in particular, before some large-scale meetings, environmental protection stocks tend to become a hype concept. However, from the group prospectus, investors should keep an eye on two major points. One is the preferred stock arrangement before listing, which is expected to damage the fair value of this year's performance; the second is that the price of plate denitrification catalysts has plummeted. It is difficult to predict whether there will be a recovery in the future. However, based on the factors of China's economic downturn in recent years and the decline in electricity consumption in factories, the provisional outlook is bleak. Therefore, we suggest only speculatively purchasing this stock.

Risk Factors

(1) The customer base is highly concentrated, with sales of the five major customers (large Chinese power generation groups) accounting for more than 77% of the total sales volume last year; (2) the future growth is highly dependent on the development and suitability of denitrification catalysts used in diesel vehicles and coal-fired power plant supply and regeneration services; (3) the group's business history is limited, making it difficult to evaluate and perform; (4) the average price of plate denitrification catalysts did not stop at the beginning of December 2014; (5) Sales of items declined due to a decline in sales of items The criteria, generally of an unusual nature, without any long-term agreement with the customer; (6) if the sale price is determined as Higher than the account value of Series A preferred stock on the investment date, the Group expects a fair value loss. This may lead to a sharp decline in performance for the year ending December 31, 2015 compared to the previous year.