The company is a leader in domestic atmospheric management, and Zijin joined to establish a “environmental protection+new energy” two-wheel drive development strategy.
The company is deeply involved in the atmospheric treatment industry, mainly engaged in dust removal, desulfurization and denitrification equipment and engineering construction. In 2018-2022, the company's revenue increased from 9.40 billion yuan to 11.88 billion yuan, CAGR reached 6.0%, and net profit remained around 800 million yuan, which is relatively stable. In May 2022, Sunshine City officially transferred the company's controlling interest to Zijin Mining. The company used its power to actively develop new energy business and create a second growth curve of “energy storage+mine green electricity”.
Guaranteed thermal power and non-electric discharge volumes are expected to support the increase in demand for flue gas treatment, and the non-gas business is relatively stable. (1) Atmospheric treatment business: a) In order to protect electricity demand, China's new coal power approval has accelerated: According to the “Analysis of the progress of China's power sector's low-carbon transformation in 2022” report, the total approved installed capacity of the new coal power projects approved in China in 2022 and 2023Q1 reached 9072/20.45 million kilowatts, and in 2021 it was only 18.55 million kilowatts. The new guaranteed coal power projects are expected to be gradually implemented in 2023-2024, which is expected to simultaneously drive environmental protection needs such as flue gas treatment. b) Demand for flue gas treatment in non-electric industries such as policy steel and cement is being released at an accelerated pace, which is expected to contribute 188-264 billion yuan to the market in 2021-2025. c) The company is a leading flue gas treatment enterprise with strong order acquisition capacity and is expected to benefit deeply.
(2) Non-gas business: It mainly includes water resources treatment, waste incineration, soil restoration, hazardous waste disposal, etc., and has developed steadily in recent years.
Focusing on the complete product technology chain of lithium battery energy storage, Zijin Lithium Mine guarantees sufficient raw materials. (1) The company focuses on “energy storage cells+energy storage systems”: Since 2022, the company has invested in the construction of a 5GWh lithium iron phosphate energy storage cell project, a 1GWh lithium battery energy storage system project with Yangdao, and a 5GWH energy storage pack and system integration project with Honeycomb (the first phase of the 2GWh project was put into operation at the end of August 2023). All of these projects are expected to release about 9 billion yuan of revenue space after delivery. (2) In the context of double carbon, the lithium battery energy storage industry ushered in explosive growth:
According to CNESA statistics, the cumulative installed scale of new energy storage in China is expected to reach 31.3 GW in 2023, 138.4 GW by 2027, and 45.0% in 4 years. (3) The collaborative advantages of the Zijin industry chain are obvious: Zijin lithium ore resources can provide stable raw material guarantees for the construction of the company's energy storage projects. Furthermore, cathode materials can account for 40% of the cost of energy storage batteries, and self-supply of raw materials can reduce manufacturing costs to a certain extent.
Demand for green electricity in mines is strong, and Zijin has excellent profitability for its own use. (1) Under the goal of dual energy consumption control, Zijin Mining is actively developing clean energy business, and demand for green electricity is strong: Zijin accounted for about 16% of renewable energy use in 2022, and plans to achieve a target of more than 30% by 2030. The company has in-depth cooperation with Zijin and will invest in the construction of the Zijin Mine Green Power Project as an operator. According to our estimates, Zijin's potential demand for the company's new energy installations is expected to reach 9.0 GW in 2030, which is expected to release about 6 billion yuan in revenue space. (2) The profitability of mining green power projects is superior: Most of the electricity generated by mining green power projects is for Zijin's own use, while for purple metal enterprises, the industrial and commercial sales price of electricity is significantly higher than the online benchmark price. According to our estimates, under a 70% spontaneous self-use ratio, the operating margin of the mine photovoltaic power generation project can reach 63%, and the operating margin of the mine wind power project can reach 62%.
Investment advice: First coverage, with a “buy” rating. The company is a leading enterprise in the field of atmospheric management. Together with Zijin Mining, it is actively developing the second growth curve of “energy storage+mine green electricity”. It is expected that the company's performance will usher in rapid growth. We expect the company to achieve net profit of 9.0/15.3/2.13 billion yuan in 2023/2024/2025, corresponding to PE15.1/8.9/6.4x.
Risk warning: industry policy risk, increased market competition risk, project progress falling short of expectations, risk of raw material price fluctuations, risk of uncertain calculation assumptions.