Description of the event

2023A achieved revenue of 808 million yuan, an increase of 47.47% year on year; net profit to mother was 90 million yuan, up 36.39% year on year; net profit after deducting non-return to mother was 75 million yuan, up 35.02% year on year. Among them, 2023Q4 achieved revenue of 408 million yuan, an increase of 87.58% year on year; net profit to mother of 0.36 million yuan, up 116.15% year on year; net profit after deducting non-return to mother of 30 million yuan, an increase of 117.83% year on year.

2024Q1 achieved revenue of 104 million yuan, up 2.57% year on year; net profit to mother of 79 million yuan, up 492.69% year on year; net profit after deducting non-return to mother was 0.16 million yuan, up 43.38% year on year.

Incident comments

Driven by industry policies and the improvement of the company's brand effect, net profit due to mother increased 36.4% in 2023. 1) Performance: The company achieved revenue of 808 million yuan in 2023 and completed the equity incentive target (800 million yuan); the net profit growth rate was slightly lower than the revenue growth rate, mainly due to the decline of 6.8 pct to 22.7% in the gross margin of the comprehensive solution (differences in contract models for different projects, specific parameters of heavy metal pollutants, and fluctuation in gross margin) and confirmed share payment fees of 10.48 million yuan. 2) Judging from the business structure, the integrated solutions and product sales business contribute to growth momentum. In 2023, the copper-lead-zinc industry began implementing special emission limits. After the company's listing, the brand effect was enhanced and marketing reforms were successfully implemented, leading to a year-on-year increase of 88.0% to 460 million yuan in comprehensive solution revenue; sales of complete water treatment equipment achieved results, and product sales business (including sales of pharmaceuticals and integrated equipment) increased 41.7% year-on-year to 137 million yuan. In addition, operating service revenue fell slightly by 1.0% year on year to 193 million yuan, mainly due to the failure to renew the Ningxiang Jinli Bangpu Operation Project (revenue of 10.95 million yuan in 2022). 3) Cash flow: The net cash flow from operating activities was 67 million yuan, an increase of 155.8% over the previous year. It was mainly due to the change of payment settlement method for suppliers to bank acceptance bill payments. The payout ratio was 74.4%, a year-on-year decrease of 15.2pct, mainly due to delays in repayment of the comprehensive solution for Q4 inspection.

2024Q1 net profit of non-return to mother was 0.16 million yuan, an increase of 43.4% over the previous year; 39% of the company's shares in Zijin Pharmaceutical due to changes in accounting methods led to a high increase in net profit due to changes in accounting methods. 1) Deducted non-performance: The company's 2024Q1 revenue increased slightly by 2.57%, net non-performance increased by 43.4% year on year, and gross margin increased 9.61 pcts year over year to 40.1% year on year. It is speculated that sales of operating services and products with high gross margins have accumulated, and the share of revenue increased. 2) Investment income: The company completed the acquisition of 61% of the shares in the joint venture Zijin Pharmaceutical in February 2024. The company originally held 39% of Zijin Mineral Processing Pharmaceutical Company's shares and was re-measured according to fair value on the date of purchase, increasing the investment income by 61.63 million yuan. Zijin Pharmaceutical's copper extract technology is leading, and is expected to have a synergistic effect with the company's metal resource recycling; in addition, from 2021 to 2023H1, Zijin Pharmaceutical's overseas sales account for more than 65%. Customers are mainly concentrated in the Democratic Republic of the Congo (DRC), and Sainz can use Zijin Pharmaceutical's customer resources to break through overseas markets.

Cooperation with Zijin Mining continues to deepen. In 2023, the amount of transactions related to the company and Zijin Mining was 281 million yuan, or +98.8%, accounting for 34.7% of the company's revenue, up 9.0 pct year-on-year, including comprehensive solutions of 156 million yuan, +137.6% year over year; operating services of 90.75 million yuan, +23.4% year on year; new equipment sales of 16.56 million yuan and technical services of 10.14 million yuan. The company added a number of Zijin mining businesses, with transactions related to Norton Goldfield in Australia and Zijin Copper in Serbia totaling 62.11 million yuan, and the overseas layout continues to advance. The amount of transactions related to the company and Zijin Mining is expected to reach 450 million yuan in 2024, an increase of 60.2% over 2023. Cooperation between the company and Zijin Mining is expected to continue to deepen in the future.

Profit forecast and valuation: Considering Zijin Pharmaceutical's combined table, the company's net profit for 2024-2026 is estimated to be 2.02 (including investment income of 61.63 million yuan) /219.237 million yuan, corresponding to PE 14.4x/13.2x/12.2, maintaining a “buy” rating.

Risk warning

1. Risk of technological upgrading and iteration; 2. Sustainability risk of operational service projects.