Major asset acquisition completed, “petrochemical+ environmental protection” dual business established

The full name of Zhongsheng Hi-Tech (hereinafter referred to as the “Company”) is Jiangsu Zhongsheng Hi-Tech Environmental Co., Ltd. After completing the major asset acquisition in 2020, it formed a “petrochemical+environmental protection” dual business structure of lubricant production and sales business and comprehensive environmental management services

The name was changed to “Zhongsheng Hi-Tech” to confirm the parallel operation of the two main businesses

The company, formerly known as Jiangsu Hi-Tech Petrochemical Co., Ltd. (“Hi-Tech”), officially completed the acquisition of Suzhou Zhongsheng Environmental Remediation Co., Ltd. (now Suzhou Zhongsheng Environmental Remediation Co., Ltd., “Zhongsheng Environment”) on August 27, 2020, and officially changed its name to Jiangsu Zhongsheng Hi-Tech Environmental Co., Ltd. (stock abbreviation “Zhongsheng Hi-Tech”) at the end of June 2021. After completing the acquisition of Zhongsheng Environmental, the company formed a “petrochemical+ environmental protection” dual main business strategic layout for lubricants business and comprehensive environmental management services for subsidiaries.

The “petrochemical+environmental protection” dual main business product line is rich. The company's petrochemical industry business is mainly R&D, production and sales of various types of lubricants. It is one of the leading manufacturers of industrial lubricant products in China. The products include 13 categories of transformer oil, hydraulic oil, internal combustion engine oil, gear oil, metalworking oil, special solvents, etc., and are widely used in the fields of power and electrical equipment, construction machinery, industrial machinery and equipment, metallurgy and transportation; the environmental protection industry business is mainly developed through the holding subsidiary Zhongsheng Environmental. The business includes ecological restoration, urban water environment management, industrial environmental management and technical consulting sectors. .

With a “dual main business” strategic layout, two-wheel drive companies continue to grow. For a long time to come, the company will continue to maintain the “dual main business” business structure of petrochemical+environmental protection, and form a “two-wheel drive” growth model with the steady and growing petrochemical industry as the basic market and the rapidly growing environmental protection industry as the growth driver.

The dual main business is running well, and the two-wheel drive performance is improving steadily

The company's performance resumed growth in the first half of 2021. Both operating income and net profit to mother increased dramatically, and profit indicators such as gross profit margin and net interest rate improved markedly

In the first half of the year, revenue increased 22.9% year over year, and net profit to mother surged 200.9% year on year. In the first half of 2021, the company achieved operating income of 465 million yuan, an increase of 22.9% year on year over 378 million yuan in the same period in 2020; net profit to mother was 45 million yuan, an increase of 200.9% year on year, which is an impressive increase. Among them, in the second quarter, the company achieved operating income of 265 million yuan, an increase of 43.4% over the previous year, and realized net profit of 29 million yuan, a significant increase of 303.2% over the previous year. In the first half of the year, the company escaped the impact of the COVID-19 pandemic in 2020, and the profit indicators achieved significant growth compared to historical levels. The comprehensive gross margin and net interest rate of H1 companies in 2021 were 23.1% and 13.2% respectively, up 14.9 percentage points and 12.5 percentage points respectively from the same period in 2020.

Revenue is growing rapidly, and the environmental protection industry may become a major contributor to future revenue growth. The environmental protection industry's revenue is growing rapidly, becoming the main driver of growth. Since the company acquired Zhongsheng Environmental in 2020 and officially changed its name at the end of June 2021, its environmental protection industry business revenue has increased dramatically. In 2021, H1's environmental protection industry achieved business revenue of 204 million yuan, an increase of 182.2% over 72 million yuan in the same period in 2020. Among them, the environmental engineering business revenue was 48 million yuan, up 9.5% year on year; the commissioned operation of sewage treatment facilities achieved revenue of 149 million yuan, an increase of 15.4% year on year; and the environmental consulting business achieved business revenue of 06 billion yuan, a slight decrease of 0.17% year on year.

Deeply involved in the field of environmental management, upgrade and build an “environmental system service provider for the environmental protection industry” based on the “Regional Comprehensive Environmental Management Service Provider”. During the reporting period, Zhongsheng Environmental's environmental protection business increased significantly. Zhongsheng Environmental is a high-tech enterprise specializing in environmental management. Its business scope covers many environmental protection industries such as water environment, soil environment, ecological environment, and gas environment. At the end of 2020, Zhongsheng Environmental signed a strategic cooperation framework agreement with the Suzhou Wuzhong Xishan National Modern Agriculture Demonstration Park Management Committee (Jinting Town Government) and Suzhou Wuzhong Financial Holding Group Co., Ltd. to complete an ecological conservation area project of no less than 1 billion yuan during the construction of the Ecological Conservation and Development Experimental Zone.

Among them, Zhongsheng Environmental provides specialized services such as ecological management, environmental restoration, municipal administration, water conservancy, and technical consulting.

The commissioned operation of sewage treatment facilities contributed significantly to the company's revenue growth

Looking at the company's various business segments, although the largest revenue contributor is still the lubricant production and sales business, the ecological restoration and environmental management business is growing rapidly. Due to the slowdown in the development and growth rate of the lubricant industry in recent years, the company's revenue growth was under pressure, contributing to stable revenue. In the first half of 2021, the company achieved operating income of 213 million yuan, accounting for 45.8% of total revenue, down 12.60% year on year; while the environmental protection industry achieved revenue of 204 million yuan in the first half of 2021, accounting for 43.81% of total revenue, up 24.73% year on year.

The valuation after the acquisition was significantly lower than the historical average, and the dual main business valuation system needs to be rebuilt

Since the company completed the acquisition of Zhongsheng Environmental on August 27, 2020, there has been no major breakthrough in the company's stock price performance. Currently, the company's PE TTM is between 15.0X and 20.0X, which is significantly lower than the historical average of 121.04X, and has not received attention from the capital market even after achieving significant performance growth in the first half of the year. As can be seen from the review of historical trends, the current market positioning of the company is unfair, and the “petrochemical+environmental protection” dual business model also means that the company's valuation system is in urgent need of transformation.