Incident: Synes plans to acquire 61% of Zijin Pharmaceutical's shares and strengthen the distribution of mineral processing agents and copper extractants. On January 13, Sainz announced that it plans to use its own capital of 183 million yuan to acquire 61% of the shares of the participating subsidiary Fujian Zijin Mineral Processing Pharmaceutical Co., Ltd. After the acquisition is completed, Zijin Pharmaceutical will become a wholly-owned subsidiary of Sainz. We estimate that the company's net profit for 23-25 will be 0.84/1.55/ 212 million yuan, corresponding to the 23-25 PE of 44/24/17. Comparable to the company's 24-year PE average, is 26 times higher. Considering the scarcity of the company as the first domestic A-share listed company for heavy metal pollution prevention and control and the broad market for non-ferrous heavy metal pollution prevention and control, the company was given 34 times PE in 24 years, corresponding to a target price of 55.42 yuan (previous value of 53.79 yuan), maintaining a “buy” rating.
The copper extractant industry has high barriers. Zijin Pharmaceutical is a scarce target in the copper extractant industry, which has a high degree of production refinement. There are high barriers in production processes, product formulations, technological innovation, etc. At the same time, technology updates and iterations are fast, requiring enterprises to have sufficient technical level and innovation ability. Currently, from a global perspective, there are four main companies that can provide stable supply of copper extractants to many large downstream international mining companies engaged in hydrometallurgy: BASF, Solvay, CommScope Chemical, and Zijin Pharmaceuticals. According to the company's acquisition announcement, Zijin Pharmaceutical's revenue from January to September 2023 was 80.73 million yuan and net profit was 11.13 million yuan. According to company estimates, the closing price of Kangpu Chemical on September 28, 2023 was 36.43 yuan/share. Earnings per share for the first three quarters were 1.25 yuan/share, and the dynamic PE was 21.858.
The company expects the net profit of Zijin Pharmaceutical to be 20.52 million yuan in 2023. Referring to Kangpu Chemical Dynamic PE, the calculated valuation is 4485.983 million yuan, which is 49.53% higher than the transaction valuation of 30 million yuan.
Zijin Pharmaceutical can broaden the company's overseas popularity in the overseas market, form a good channel collaboration with the company, and has accumulated and established a marketing network for large-scale domestic non-ferrous mining and metallurgy enterprises over the years. Zijin Pharmaceutical has mature marketing experience with overseas customers. In recent years, Zijin Pharmaceutical's overseas sales account for more than 70%, and Xintuo customers (end users of the drug) are all foreign customers. Zijin Pharmaceutical's rich experience in overseas markets can help the company expand sales channels, break through overseas customer groups, achieve the company's international development strategy, and enhance the company's profitability .
Zijin Pharmaceutical has deep technical barriers, and has formed a good technical collaboration with the company since the company took 39% of Zijin Pharmaceutical's shares in June 2019. The main cooperative R&D projects include “engineering application of rhenium recycling projects in smelting flue gas washing waste acid”, “synthesis and application of novel mineral processing agents”, and “research on the application of copper extractants in the resource recycling of non-ferrous smelting sewage”. The ZJ988X series copper extractant independently developed by Zijin Pharmaceutical breaks the monopoly of BASF of Germany and Solvay of Belgium; the new mineral preparation formula lead ore ZJ201 can environmentally separate metallic copper from lead concentrate and achieve industrial applications in Wuhou Zijin and Yuanyang Huaxi, creating significant economic benefits. The completion of mergers and acquisitions can enrich the company's technical accumulation in the field of mineral processing agents and extractants, and at the same time strengthen barriers by using them in conjunction with heavy metal pollution control technology products.
Risk warning: New technology marketing is unfavorable, accounts receivable balances are large, and subsidiary expansion falls short of expectations.