Incident: On July 25, 2024, the company reviewed and passed the “Proposal on Capital Increase and Stock Expansion of Holding Subsidiaries” and “Proposal on the Company's Waiver of Priority Subscription Rights and Related Transactions for Subsidiaries”, agreeing that the company's holding subsidiary Lianyungang Jiaao Renewable Energy Co., Ltd. (hereinafter referred to as “Lianyungang Jiaao”) plans to increase capital and expand shares and introduce investors. The investors (finally determined to be “BP GLOBAL INVESTMENTS LIMITED”, hereinafter referred to as “bp”) intend to obtain an additional registered capital of 0.353 billion yuan for the target company with 0.353 billion yuan. On December 26, 2024, the company issued the “Notice on the Progress of Introducing Investors to Subsidiaries and Completing the Registration of Industrial and Commercial Changes”, announcing that on December 18, 2024, Jiaao, Lianyungang has completed the relevant industrial and commercial change registration procedures and obtained a business license issued by the Lianyungang Market Supervision Administration. After the completion of this change, the registered capital of Lianyungang Jiaao increased from RMB 2 billion to RMB 2.353 billion, and BP's registered capital was RMB 0.353 billion, accounting for 15.0021%. After the capital increase is completed, the company continues to be the controlling shareholder of the target company and still has actual control over Jiaao, Lianyungang. Furthermore, on December 25, 2024, Lianyungang Jiaao received an initial payment of RMB 30 million from BP.

New investors rely on international oil giants, and the company's SAF project is progressing smoothly to attract outstanding investors.

On September 6, 2022, the company issued a foreign investment announcement stating that it will establish a subsidiary to invest in a bio-aviation coal (“SAF”) project with an annual output of 0.5 million tons. As an outstanding representative of sustainable aviation fuel, SAF has become a key means of reducing carbon dioxide emissions in the aviation sector due to its low carbon and environmental protection characteristics, and the market demand potential is high.

In the current macro context where China is actively implementing the goals of “carbon peak by 2030 and carbon neutrality by 2060”, the strategic position of biomass energy as an important option for zero carbon emissions is becoming more and more prominent, and the biomass energy industry is entering a period of unprecedented development opportunities. Construction of the project began in January 2023, and the company stated in its 2023 annual report that it expects the project to be completed in December 2024. As of November 21, 2024, the company issued an announcement stating that the project had produced qualified products, which met the expectations of the company's investment and construction plan, reflecting the smooth implementation of the project.

The new investor BP is a wholly-owned subsidiary of British Petroleum, which is one of the largest petroleum and petrochemical group companies in the world. This capital increase indirectly indicates that the oil giants are optimistic about the development prospects of the SAF industry and their affirmation of the company's SAF project.

Investment advice: 2025 is the first year that the EU will be forced to mix SAF. The mixing ratio will reach 2%, and this ratio will reach 5% in 2030. I am optimistic about overseas demand for SAF driven by policies. Based on the smooth progress of the company's SAF production capacity investment and construction, the output products are expected to start contributing to performance next year. Coupled with capital injections from overseas giants showing support for the project, we are optimistic that SAF will help the company's development. We expect the company's net profit to be 0.244 and 0.358 billion yuan respectively in 2025-2026, maintaining the “recommended” rating.

Risk warning: Demand for biofuels falls short of expectations, production capacity is not climbing faster than expected, and there is a risk of trade policy changes.