In recent years, the environmental protection industry has experienced a period of development pain under the influence of factors such as investment slowdown and intensified competition, making it difficult to sustain the traditional development model. As the industry development enters the "second half", industry rules are being reshaped and companies are making breakthroughs.

Against the backdrop of fundamental changes, only those companies that actively integrate into the new development pattern and provide strong support for the sustained development of their business through continuous innovation and practice can stand out from the competition. For example, not long ago, the leading hazardous waste resource company, Hong Cheng Environmental Technology (2265.HK, hereinafter referred to as "Hong Cheng Environmental"), released its mid-term performance.

1. Both revenue and profit have increased, and the business structure has been further optimized.

The financial report shows that in the first half of 2024, the company achieved a total revenue of approximately 10.5 billion yuan (RMB), a significant year-on-year increase of 113.6%. The company explained in the financial report that the increase in revenue was due to the company's enhanced competitiveness and business expansion capabilities in the market. The gross profit was approximately 519 million yuan, a year-on-year increase of about 66.9%.

Both of the core data achieved double-digit growth, especially the significant increase in profitability deserves attention. During the reporting period, Hong Cheng Environmental's net profit increased by about 94.3% year-on-year, reaching 204 million yuan.

Focusing on the company itself, this is mainly due to Hong Cheng Environmental's focus on optimizing its business structure in the face of external environmental uncertainties, promoting the continuous realization of new projects through technological breakthroughs and industrial chain extension, resulting in value release.

Currently, the company has developed a diversified business structure dominated by "hazardous waste treatment + sales of sulfur concentrates and recycled products". Benefiting from the production and operation of the sulfuric acid production line started last year, the company's new business, the sales revenue of sulfur concentrates and recycled products, reached 463.09 million yuan, accounting for approximately 44% of the total revenue. In addition, Hong Cheng Environmental's sales revenue from sulfur concentrates saw a substantial increase of 224%, reaching 348.66 million yuan.

Image source: company financial report

From the proportion of various business segments, the company's business structure tends to be healthy, and its risk resistance ability has been further improved. This is also reflected in this financial report. It can be seen that the strong performance of sulfur concentrate and recycled products business effectively offsets the volatility that may occur in the gold mine hazardous waste treatment business, ensuring a good trend of continuous and stable increase in overall revenue. Therefore, it seems that the company has achieved success in product diversification and comprehensive utilization of resources, steadily moving towards high-quality growth.

Second, wait for the value release of diversified layout and further verify the growth potential

From a long-term perspective, whether Hongcheng Environmental is a stock standard for long-term value investment in the environmental protection industry? We need to find the answer from the company's growth analysis.

From the industry perspective, the hazardous waste treatment industry has a relatively high entry barrier, and the professional barriers in terms of technology and production capacity are particularly evident. In this field, as a strong and advantageous sub-market, gold hazardous waste treatment and recycled resource products can maintain stable and excellent profitability. Hongcheng Environmental's steady profitability level in recent years is a strong proof of this phenomenon.

Although the market size of the gold mine waste treatment industry is currently small, in view of the guidance of the "carbon neutrality" goal, the industry is expected to achieve continuous expansion in the long term. Currently, the industry presents a scattered, weak, and small competitive landscape. Under the background of increasingly stringent environmental regulations, backward production capacity is eliminated, and industry concentration further increases. Based on its own leading position, Hongcheng Environmental will also welcome more certain growth.

Focusing on the company itself, it can be found that the growth logic of each business segment is relatively clear.

First, looking at the gold mine hazardous waste treatment sector, the company's location advantage (Shandong Yantai is a globally renowned gold-rich mining area), as well as the long-term stable customer relationships established with top local mining companies, have laid a solid foundation for Hongcheng Environment's performance. At the same time, considering that the expected interest rate cuts by the Federal Reserve has to some extent boosted the attractiveness of gold as a safe-haven asset, driving further demand growth. In this context, the company's bargaining power in the market is expected to continue to strengthen, thereby achieving dual growth in business volume and product prices.

Looking at sulfur concentrates and their processing products, as an active practitioner of the circular economy, the company has formulated a series of strategic plans around the development concept of "developing a circular economy and building an eco-friendly enterprise", achieving the extension and improvement of the industry chain. The landing of projects such as the company's new energy material integration project not only realizes the efficient utilization of resources and product diversification, but also provides support for the construction of green mines. With the landing and production of more projects in the future, it will help the company's business volume reach a new level.

III. Conclusion

In summary, despite the challenges in the external environment, industry leaders like ckh holdings have maintained a stable operating situation and excellent profitability, and their leading position in the industry and business model have been constantly tested in practice.

In addition, it is worth emphasizing that the current market cap of ckh holdings is only 0.83 billion Hong Kong dollars. In my opinion, there is a double discount in terms of performance and valuation.

In terms of performance, over the past two years, in the face of complex international environment impact, intensified competition in the hazardous waste industry, and imbalance in supply and demand structure, the company's operations have faced great challenges. From this performance, ckh holdings has returned to the growth path of revenue. If we calculate based on the previous net margin level of 20% and the current revenue level, the company has at least doubled the growth potential in terms of profit.

In terms of valuation, constrained by the overall liquidity of the Hong Kong stock market, ckh holdings is currently undervalued. With the Federal Reserve starting an interest rate cutting cycle, the rise in the water level of the Hong Kong stock market will greatly alleviate this problem.

In summary, with its leading position in the industry and a clear growth path in the "carbon neutrality" trend, ckh holdings cannot be ignored in terms of its potential for performance growth and valuation improvement. With the gradual improvement of the market environment and the continuous validation of the company's performance, the investment value of ckh holdings is expected to be re-evaluated and recognized by the market.