Description of the event

On September 4, 2024, 4.84 million shares held by Longxiangyu Industrial (formerly “Longjing Industrial”), a shareholder holding 5% or more of the company's shares, were released from pledge (0.45% of the total share capital) and transferred to Zijin Mining, the controlling shareholder of the company through a bulk transaction. After this major transaction, the total number of shares held by Longxiangyu Industrial and Xintuocheng was reduced from 0.107 billion shares to 0.102 billion shares, and the shareholding ratio was reduced from 9.91% to 9.46%.

Incident comments

Zijin Mining continues to increase its holdings, with a current shareholding ratio of 24.46%. 1) May 2022: The original controlling shareholder and its co-actors transferred 15.02% of the shareholding rights to Zijin Mining and delegated 10.02% of voting rights; 2) Since the end of October 2023: The company issued 7 announcements to increase the controlling shareholders' holdings by more than 1%. As of July 1, 2024 (7th announcement) Zijin Mining held a total of 23.15% of the company's shares; 3) January 29, 2024: Announced the cancellation of voting rights previously entrusted to Zijin Mining (9.91% of total share capital) main It avoided touching on the tender offer (Zijin's voting rights had reached 29.36% before cancellation); 4) September 4, 2024: Longxiangyu Industrial transferred 0.45% of its shares to Zijin Mining through a bulk transaction. After the transfer, Zijin Mining's shareholding ratio reached 24.46%. Judging from the number of shares held by Zijin Mining, excluding this major transaction, the company increased its holdings by 9.23 million shares through the secondary market after issuing the 7th announcement to increase its holdings by more than 1%.

Zijin Mining has plans to increase its holdings in the next 12 months. As of September 4 of this announcement, Zijin Mining has no plans to reduce its holdings; apart from this change in equity, Zijin Mining and its co-actors have plans to continue to increase their holdings of Longjing Environmental Protection shares within the next 12 months. Controlling shareholders continue to increase their holdings, which is conducive to increased synergy with the company, and the company's long-term development logic is strong.

2024H1's operating performance was good, and Q2 net profit after deducting non-return to mother increased 61.1% year over year. The decline in the apparent growth rate of Q2 performance was mainly due to factors such as the recovery of Huatai insurance payments in the same period last year, and the net profit not attributable to mother increased 61.1% year-on-year after deducting this factor. Net interest rates for 2024Q1/Q2 were 8.65%/9.82%, respectively. The quarterly increase in profitability was mainly due to:

1) High quality order fulfillment: Since last year, the company has paid close attention to the quality of new contracts. The gross margin of the 2024H1 environmental protection equipment manufacturing business was 23.83%, higher than 23.39% of 2023A; 2) The operating level continued to improve: the cost ratio changed -0.85pct/-1.68pct year-on-year during the 2024Q1/Q2 period, and the “improving quality and efficiency, and reducing overall costs” special activity achieved remarkable results; 3) The new energy business with a high gross margin began to contribute to performance: 2024H1 The gross margin of the new energy business was 27.9%, March 29, 2024 The first phase of the Lagocuo Phase I project was put into operation, and the high-margin green power business contributed positively to the company's gross profit.

Environmental orders are plentiful, and quality is improving. At the end of 2024H1, the environmental protection project contract was 19.538 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 energy storage business is progressing smoothly during the construction of the nearly 1GW wind and green power project. In 2023, the company signed a contract for more than 2 GW mine green power projects. More than 27 projects are under construction (the scale is nearly 1 GW). The Laguocuo Phase I Phase/Phase I projects have already been put into operation. The first phase of Duobaoshan is expected to be put into operation in Q4; an order of 1.499 billion yuan is in hand at the end of 2024H1 for energy storage.

Profit prediction 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 1.081/1.401/1.706 billion yuan in 2024-2026, up 112.4%/29.6%/21.7% year over year, corresponding to PE valuation of 11.2x/8.6x/7.1x. 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.