Description of the event

On July 1, 2024, Longjing Environmental Protection issued the “Indicative Notice Concerning the Controlling Shareholder Increasing the Company's Shares by More than 1%”. Zijin Mining, the controlling shareholder of the company, increased its holdings of the company's shares by 11.8897 million shares from March 26, 2024, and June 6 to July 1, 2024, accounting for 1.0998% of the company's total share capital.

Incident comments

Since the end of October 2023, Zijin has accumulated an increase of 80.3876 million shares, a total change of 7.44%. After this increase, Zijin held a total of 23.15% of the company's shares. 1) November 2, 2023: Announcement Zijin Mining's cumulative shareholding of 1.4947 million shares (0.1383% of total share capital) from October 26 to November 2; 2) December 7, 2023: Announcement Zijin Investment's cumulative increase of 10.8153 million shares (1.0004% of total share capital) from November 13 to December 7; 3) December 22, 2023: Announcement December 15 to December 22, only 6 Zijin Investment increased its cumulative holdings of 17.1181 million shares (1.5834% of total share capital) within a trading day; 4) January 22, 2024: Announcement: cumulative increase of 10.9793 million shares (1.0156% of total share capital) from December 25 to January 22; 5) February 6, 2024: Announcement: Announcement: 15.9562 million shares (1.4759% of total share capital) from February 5 to February 6; 6) 2024 February 29: Announcement: Zijin's cumulative increase in holdings of 12.1343 million shares (1.1224% of total share capital) from February 7 to February 29; 7) July 1, 2024: Announcement: Cumulative increase of 11.8897 million shares (1.0998% of total share capital) from March 26, June 6 to July 1. Previously, Longjing Industrial and its co-actors lifted the delegated voting rights (accounting for 9.91% of the total share capital; the voting rights of Zijin had reached 29.36% before cancellation), which is speculated mainly to avoid touching on the proposed takeover; the controlling shareholders continued to increase their holdings, which is conducive to increased synergy with the company, and the company's long-term development logic is strong.

In line with Zijin's demand for “oil to electricity”, it entered the green new energy mining equipment business. Recently, the company announced that it plans 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 controlling shareholders and their subsidiaries. It is expected that the related transaction amount will not exceed 0.37 billion yuan in 2024, and the net interest rate is 5% to 10%. It is expected to increase profits by 0.019-0.037 billion yuan in 2024.

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 orders of 1.65 billion yuan were in hand at the end of 2024Q1. The 2023M8 2GWh PACK+ module production line was put into operation, and the 2024M1 5GWh lithium iron phosphate battery project was put into operation, and the energy storage business is progressing smoothly.

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 7 times to increase its holdings by more than 1%. The company is expected to achieve net profit of 1.152/1.466/1.722 billion yuan in 2024-2026, up 126.2%/27.3%/17.5% year-on-year, corresponding to PE valuation of 11.1x/8.7x/7.4x. Give it a “buy” rating.

Risk warning

1. Competition for flue gas control intensifies and profit levels fluctuate; 2. The energy storage industry is fiercely competitive and profitable.