Incident: On February 23, 2024, the company released its 2023 performance report. The company achieved operating income of 808 million yuan, an increase of 47.39%; achieved net profit attributable to mother of 93 million yuan, an increase of 40.79%, exceeding the performance forecast limit (0.80 to 86 million yuan); and realized net profit without deduction of 76 million yuan, an increase of 36.27%.

The brand effect increased, and the company's solution and product sales business grew rapidly in 2023. The main reasons for the sharp increase in the company's performance in 2023:1) The brand effect increased after the company went public, and the heavy metal pollution prevention and control comprehensive solution business (revenue increased by 85.54%) and product sales business (revenue increased by 64.29%) grew rapidly in 2023; 2) The company implemented marketing system reforms, optimized resource allocation, further implemented team marketing strategies, mobilized the enthusiasm of marketers, and improved business promotion efficiency.

With the support of core technology, the company's brand effect will improve, and it is expected that the solution business will be further transformed, leading to continued growth in operating business and product sales business.

It is proposed to acquire Zijin Pharmaceutical, improve resource recycling technology, explore overseas markets, and deepen cooperation in Zijin mining. On January 12, 2024, the company announced that it plans to use its own capital of 183 million yuan to acquire 61% of the shares of the participating subsidiary Zijin Pharmaceutical. After the transaction is completed, the company will hold 100% of Zijin Pharmaceutical's shares. Zijin Pharmaceutical is mainly engaged in R&D, production and sales of mineral processing agents and copper extractants, and the acquisition price is reasonable. Zijin Pharmaceutical specializes in copper extractants (ZJ988X), environmentally friendly cleaning agents (ZJ601), environmentally friendly inhibitors (ZJ201) and various mineral processing additives, mainly used in copper hydrosmelting production in the non-ferrous industry; it has an annual output of 3,400 tons of copper extractants, 2000 tons of phosphoric acid extractants, and 1000 tons of lead beneficiation. After the completion of this transaction, it will: 1) Achieve rapid accumulation and upgrading of resource recycling technology: Zijin Pharmaceutical is scarce, and its self-developed ZJ988X series copper extractant has broken the copper extractant market monopolized by BASF (LIX series) and Belgium's Solvay (OPT series); the only major competitors of copper extractants worldwide are BASF, Solvay, and CommScope Chemical. The company uses copper extractant technology as the foundation for research and development to rapidly accumulate and upgrade resource recovery technology, and expand the application field to high-value metals such as rhenium, indium, rubidium, and cesium, and new energy metals such as lithium, nickel, and cobalt. 2) Develop overseas markets: Zijin Pharmaceutical has accounted for more than 70% of foreign sales in recent years, and has rich experience in overseas market development. The company can use its efforts to achieve a full industry chain layout from copper smelting at the production end to end smelting wastewater treatment and rare metals recycling to achieve an international development strategy. 3) Deepening cooperation: Zijin Pharmaceutical generated related transactions of 26.1481 million yuan with Zijin Mining and the companies it controls in 2022; 2023M1-9 related transactions were 12.3119 million yuan, accounting for 15.25% of revenue. After the company acquired Zijin Pharmaceutical, related transactions with Zijin Mining and the companies it controls will increase.

Profit forecast and investment rating: Considering the rapid growth of the company's solution and product sales business in 2023, it will help the operating business development after the transformation; it is expected that technology will improve and overseas market development will accelerate after the acquisition of Zijin Pharmaceutical; we raised the company's net profit to the mother in 2023-2025 to RMB 0.93/1.56/215 million (original value of 0.84/1.51 billion yuan), corresponding to the 2023-2025 PE 36/22/16 times (valuation date 2024/2/23). Maintain a “buy” rating.

Risk warning: industry policy changes, acquisition plan progress, downstream industry production expansion progress falls short of expectations