Investment advice. The company is currently significantly undervalued. As the transformation logic gradually materializes, the performance is expected to exceed expectations. We maintain our forecast net profit for 2024-2026 at 1,414, 17.05, and 2.107 billion yuan, respectively, with corresponding EPS of 1.31, 1.58, and 1.95 yuan, maintaining a target price of 18.10 yuan, and maintaining a “gain” rating.
The first step is to lay out the overall mine system solution. 1) Due to actual production and operation needs, the company and subsidiaries intend to sell green new energy mining equipment such as “pure electric mining cards” and “pure electric vehicle charging and switching stations” to the controlling shareholder Zijin Mining and its subsidiaries. It is proposed to add no more than 370 million yuan in daily related transactions to this end, taking the first step in laying out the overall mine system solution. 2) According to Zijin's official website, the carbon emissions of mining fuel mining cards account for more than 10% of the total carbon emissions of the Zijin mine. After being replaced with electric mining cards, the energy saving and emission reduction effect was obvious. Taking the example of a 70-ton vehicle's heavy load downhill, the carbon emissions of electric trucks per ton per kilometer were reduced by 25.6% compared to traditional diesel vehicles; moreover, according to actual operation statistics, the cost of electric trucks per ton per kilometer has decreased by 50%-60% without depreciation, and the economic advantages are also obvious. 3) According to Zijin's 2023 ESG Report, all mining companies under Zijin are introducing or preparing to introduce pure electric mining trucks, pure electric dump trucks, and new energy heavy trucks to replace existing diesel carriers. By the end of 2023, many companies have completed large-scale replacement (292 electric vehicles of various types), and the electrification process of Zijin mine trucks is accelerating. As a total mining system solution provider under Zijin, Longjing will significantly benefit.
Electric construction auxiliary equipment is operating steadily; the new energy business is advancing at an accelerated pace. 1) The company's leading position in flue gas treatment and thermal power auxiliary equipment is stable. In the first quarter of 2024, the company added 2,311 billion yuan in environmental protection engineering contracts. The power industry accounted for 66.31% and the non-electric industry accounted for 33.69% of the new environmental protection project contracts. Environmental protection project contracts in hand at the end of the period amounted to 18.36 billion yuan. The main environmental protection industry has sufficient orders to support steady growth in performance. 2) In terms of distributed scenery, the company relies on the Zijin Mine's clean energy business to fully develop, and the construction of the nearly 1GW wind and green power project is progressing smoothly. At the same time, keeping up with Zijin's overseas and domestic resources, a number of projects are undergoing preliminary work. 3) In terms of batteries, the first phase of Longjing Honeycomb's 2GWHPack production line was put into operation in August 2023; the Shanghang 5GWh lithium iron phosphate energy storage battery project was successfully put into operation in January 2024; in 2023, the company had an energy storage contract of 1.56 billion yuan, and the new energy business was actively laid out, and the pace of progress exceeded expectations.
Zijin made a big effort to increase its holdings, showing confidence. As of March 2024, Zijin's secondary market continued to increase its holdings. Through centralized bidding, the company's shares were increased by a total of 68,800 shares, accounting for 6.38% of the company's total share capital. A total of 238.9 million shares were held, accounting for 22.10% of the company's total share capital, showing confidence.
Risk warning: Flue gas equipment, solid hazardous waste project management, new energy business development is lower than expected, etc.