Description of the event
On June 18, 2024, the company issued the “Notice on New Daily Related Transactions” to sell green new energy mining equipment such as “pure electric mining cards” and “pure electric vehicle charging and switching stations (including construction and operation)” to the controlling shareholder Zijin Mining and its subsidiaries. To this end, the company and its subsidiaries plan to add no more than 370 million yuan in daily related transactions with Zijin Mining and its subsidiaries (period from June 19, 2024 to December 31, 2024).
Incident comments
Relying on Zijin's “oil to electricity” trend, we are developing new energy mining equipment business such as pure electric mining cards. Zijin Mining is implementing “oil to electricity”, and all of its mining companies are introducing or preparing to introduce pure electric mining trucks, pure electric dump trucks, and new energy heavy trucks to replace existing diesel carriers. From 2020 to 2023, Zijin's electric vehicle fleet increased from 13 to 292, and the scale grew rapidly. This new daily related transaction focuses on Zijin's “double carbon” strategic goal and the development trend of “oil to electricity” in mines, integrating mining equipment industry chain resources, providing comprehensive solutions for green power and new energy equipment for mines, and gradually establishing an internal ecological circulation system for mine green electricity. It is expected that in 2024, the related transaction amount will not exceed 370 million yuan, and the net interest rate will be 5%-10%, which is expected to increase profits by 19.37 million yuan in 2024.
A subsidiary of Lianhui Technology was established to specialize in mining machinery manufacturing and other businesses. On May 22, 2024, Fujian Longjing Lianhui Technology Co., Ltd. was established, and Longjinghuan held 100% of its shares. The company's business scope includes mechanical equipment R&D and sales; new material technology R&D and promotion services; emerging energy technology research and development; mechanical parts and parts processing; mining machinery manufacturing and sales; battery manufacturing and sales; material handling equipment manufacturing and sales, etc.
Controlling shareholders continue to be empowered, and the company's long-term development logic is highly deterministic. Since Zijin joined the company, the company's new energy business has developed rapidly. Since October 2023, Zijin has announced 6 times to increase its holdings by more than 1%. As of the end of 2024Q1, the shareholding ratio reached 22.10%. This increase has empowered the green new energy mining equipment business. The synergy between the company and controlling shareholders has further improved, and the company's long-term development logic is strong.
Environmental orders are plentiful, and quality is improving. At the end of 2024Q1, the environmental protection project contract was 18.355 billion yuan. The “Sales Contract Quality Management System” was revised and improved last year to control projects that did not meet the company's gross margin control line and advance funding requirements, and order quality increased.
The Laguocuo project was put into operation on March 29, and the nearly 1GW scenic green power project is under construction. In 2023, the company signed a contract for more than 2 GW mine green power projects, and more than 27 projects are under construction (nearly 1 GW in scale). The first phase of Tibet Laguo Phase I began generating electricity on March 29, with an estimated annualized net profit of 50 million yuan to mother. The first phase of the Kerzhou project has been completed and is awaiting the government's shared energy storage construction to be connected to the grid. The external line and supporting projects of the first phase of the multi-copper project will be completed in the near future and connected to the grid after approval. A number of projects such as Serbia Phase I PV, Guyana Phase I PV, and Tibet Lago Phase II are in progress.
Energy storage had 1.65 billion yuan of orders at the end of 2024Q1. The 2023M8 2GWh PACK+ module production line was put into operation, and there are sufficient orders in hand; the 2024M1 project to produce 5 GWh lithium iron phosphate batteries per year was put into operation, and the first batch of products has been shipped.
Profit forecast and valuation: The company has clarified the “environmental+new energy” two-wheel drive strategy. The main environmental protection business has strong ability to take orders. Green Power has begun to contribute to performance, the energy storage business is expanding smoothly, and it has entered the mining equipment business; since the end of October 2023, Zijin has announced 6 times to increase its holdings by more than 1%. The company is expected to achieve net profit attributable to mother in 2024-2026 of 11.52/1,466/1,722 billion yuan, up 126.2%/27.3%/17.5% year-on-year, corresponding to PE valuation of 11.2x/8.8x/7.5x. Give it a “buy” rating.
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Risk warning
1. Competition for flue gas control intensifies and profit levels fluctuate; 2. The energy storage industry is fiercely competitive and profitable.