Investment highlights:
On January 13, 2024, Sainz announced the acquisition of participating subsidiaries and related transactions. 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. (hereinafter referred to as “Zijin Pharmaceutical”), and plans to sign an agreement to transfer 51% of Zijin Pharmaceutical's shares held by Zijin Mining Group Nanfang Investment Co., Ltd. (hereinafter referred to as “Zijin South”) and 10% of Zijin Pharmaceutical's shares held by Shanghang County Zhongxin Investment Department (hereinafter referred to as “Zhongxin Investment”). After the transaction is completed, the company will hold 100% of Zijin Pharmaceutical's shares.
In order to get rid of its dependence on imported pharmaceuticals by foreign companies, Zijin Mining established a joint venture in 2005. Zijin Pharmaceutical's main business is R&D, production and sales of mineral processing agents and copper extractants. It is mainly used for hydrometallurgy copper extraction in the non-ferrous industry, and is suitable for treating low-grade copper ore, copper oxide ore and some complex copper ores. Zijin Pharmaceutical's endogenous growth momentum is strong. The net profit has maintained high growth in the past three years, mainly driven by new non-Zijin customers. Net profit from 2021 to 2023 was 8.76 million yuan, 9.09 million yuan, 20.52 million yuan (the company expected in 2023), with a compound growth rate of 53%. The reason for the high increase in results in 2023 was mainly due to the addition of new overseas Chinese customers.
Hydrometallurgy has higher purification efficiency and is suitable for low-grade poor mines and tailings smelting. As the extraction of global mineral resources accelerates, the grade of existing mines gradually declines, making hydrometallurgy have a wider application space. Compared with traditional pyrometallurgy, in recent years, the share of more energy-efficient, environmentally friendly, and efficient hydrometallurgy in metal smelting has gradually increased. Compared with traditional pyrometallurgy, in recent years, the share of more energy-efficient, environmentally friendly, and efficient hydrometallurgy in metal smelting has gradually increased. Taking copper as an example, global hydrometallurgy production reached 4.09 million tons in 2022, accounting for 18.7% of total copper production, up from 2020 (3.9 million tons, accounting for 16%). In the future, with the promotion of global energy saving and carbon reduction policies and the further increase in environmental protection requirements in the metallurgical industry, hydrometallurgy is expected to replace pyrometallurgy and become the mainstream of metallurgical methods, thus driving the further expansion of demand for metal extractants.
On February 24, 2024, the company disclosed its 2023 performance report. In 2023, we achieved operating income of 808 million yuan, an increase of 47.4% over the previous year, achieved net profit of 93.24 million yuan, an increase of 40.8% over the previous year, and realized net profit without deduction of 75.98 million yuan, an increase of 36.3% over the previous year.
In the company's revenue structure in 2023, comprehensive solution revenue increased 85.5% year on year, estimated revenue was 454 million yuan, product sales business increased 64.3% year on year, and estimated revenue was 159 million yuan. The total revenue from operating services and other revenue was 195 million yuan, down 5.63% from 2022. We expect operating revenue to remain flat and other revenue to decline. Operating revenue remains flat. The likely reason is that many integrated solutions have an upfront testing process of half a year to one year, which reflects a certain time lag in operating revenue. In terms of revenue structure, the share of integrated solutions and pharmaceuticals revenue increased from 44.6% and 17.7% in 2022 to 56.15% and 19.7% in 2023. The growth rate of integrated solutions and pharmaceutical revenue was higher than our previous expectations, but operating revenue was lower than our expectations. Considering that the integrated solution project had a trial operation cycle for a certain period of time during the conversion of the integrated solution project into an operation project, we expect that the revenue from heavy metal sewage and wastewater operating projects may exceed expectations in 2024.
We are optimistic that after the company completes the overall merger and acquisition of Zijin Pharmaceutical, it will achieve good synergy with Zijin Pharmaceutical's copper extractant at the business level and achieve integration of technology, channels, and business.
Previously, Zijin Pharmaceutical's performance was reported in the form of investment income, and the results will be combined after completing the overall 100% equity acquisition. Since the shareholders' meeting passed the takeover bill on January 30, 2024, the transaction did not constitute a major asset restructuring and the transaction amount was small, so the impact of the merger and acquisition on performance was included in this profit forecast. We have increased our share of revenue from Chinese pharmaceuticals and slightly reduced our share of revenue from integrated solutions. We expect revenue of 2023-2025 to be 8.1/12/1.52 billion yuan, net profit to mother of 0.93/1.74 billion yuan, a year-on-year growth rate of 41%/87%/33%, corresponding to PE of 36/19/15 times, PEG<1, maintaining the “buy” rating.
Risk warning: 1) Relaxation of environmental policies and regulations 2) Downstream customer capital expenditure slows due to the downturn in the macro environment 3) Accounts receivable repayment is slow 4) Emerging new technology paths to replace the company's technology path 5) Related transactions reduce the company's overall gross margin 6) Liquidity risk in the secondary market 7) The performance of the subject of the acquisition falls short of expectations and the risk of impairment of goodwill.