In recent years, under the influence of factors such as slowing investment and intensifying competition, the environmental protection industry has experienced a period of developmental pain, and the traditional development model has become unsustainable. As the industry development enters the "second half," the reshaping of industry rules and the breakthrough of enterprises are advancing in tandem.
Against the backdrop of changing underlying logic, only those companies that actively integrate into the new development pattern and provide strong support for the sustainable development of their own business through continuous innovation and practice can break through the encirclement. For example, the gold mine waste resource leader, Hongcheng Environmental Technology (2265.HK, hereinafter referred to as "Hongcheng Environmental"), which recently released its interim performance.
I. Revenue and profit double growth, business structure further optimized
The financial report shows that in the first half of 2024, the company achieved a total revenue of about 105 million yuan (unit: RMB, the same below), a significant increase of 113.6% year-on-year. The company explained in the financial report that the increase in revenue is due to the enhancement of the company's market competitiveness and business development capabilities. The gross profit is about 51.9 million yuan, a year-on-year increase of about 66.9%.
Both core data have achieved double-digit growth, especially the significant increase in profitability is worth noting. During the reporting period, Hongcheng Environmental's net profit increased by about 94.3% year-on-year to 20.4 million yuan.
Focusing on the company itself, this is mainly due to Hongcheng Environmental's focus on optimizing the business structure in the face of external environmental uncertainties, promoting the continuous landing of new projects through technological breakthroughs and industrial chain extension, thereby releasing value.
At present, the company has formed a diversified business pattern dominated by "gold mine waste treatment + sales of sulfur concentrate and recycled products". Among them, thanks to the sulfuric acid production line that started production and operation last year, the company's new business sales revenue of sulfur concentrate recycled products reached 46.309 million yuan, accounting for about 44% of the total revenue. In addition, Hongcheng Environmental's sales revenue of sulfur concentrate increased by 224% to 34.866 million yuan.
From the proportion of the company's various businesses, the company's business structure tends to be healthy, and the ability to resist risks has been further enhanced. This is also reflected in this financial report, and it can be seen that the strong performance of the sulfur concentrate and recycled products business effectively offsets the fluctuations that may occur in the gold mine hazardous waste treatment business, ensuring a good trend of continuous and stable increase in overall revenue. From this point of view, the company has achieved success in product diversification and comprehensive resource utilization, and is steadily moving towards the path of high-quality growth.
II. Waiting for the value release of diversified layout, further verification of growth potentialFrom a long-term perspective, is Hongcheng Environmental a benchmark for long-term value investment within the environmental protection industry? The answer must be sought from the analysis of the company's growth potential.
Starting from the industry perspective, the hazardous waste treatment industry has high entry barriers, with particularly evident professional barriers in terms of technology and production capacity. In this field, gold hazardous waste treatment and recycled resource products, as advantageous segments, allow leading companies in the track to maintain stable and excellent profitability. The solid profitability of Hongcheng Environmental in recent years is a strong testament to this phenomenon.
Although the current market size of the gold mine waste treatment industry is not large, under the guidance of the "carbon neutrality" goal, the industry is expected to continue expanding in the long term. At present, the industry as a whole presents a fragmented, weak, and small competitive landscape. Against the backdrop of increasingly strict environmental regulations, outdated production capacities are eliminated, and industry concentration is further enhanced. Based on its leading position, Hongcheng Environmental will also face more certain growth.
Focusing on the company itself, it is found that the growth logic of each of the company's businesses is relatively clear.
Firstly, looking at the gold mine hazardous waste treatment segment, the company's geographical advantage (Shandong Yantai is a world-renowned gold-rich mining area), as well as the long-term and stable customer relationships established with top local mining companies, have laid a solid foundation for the performance of Hongcheng Environmental. At the same time, considering the Federal Reserve's interest rate cut expectations to some extent, it has boosted the appeal of gold as a safe-haven asset, driving further growth in demand. Under this background, the company's bargaining power in the market is expected to continue to strengthen, thereby achieving dual growth in business volume and product prices.
Secondly, looking at the pyrite concentrate and its processed products segment, 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 creating an environmental protection enterprise," achieving the extension and improvement of the industrial chain. The implementation of the company's new energy material integration project and other projects has not only achieved efficient resource utilization and product diversification but also provided support for the construction of green mines. With more projects of the company being put into production in the future, it will help its business volume to reach a new level.
In conclusion, despite the challenging external environment, industry leaders like Hongcheng Environmental have maintained a stable business situation and excellent profitability, and their leading position and business model in the industry have been continuously tested by practice.
In addition, it needs to be emphasized that the current market value of Hongcheng Environmental is only 830 million Hong Kong dollars. In my view, there is a double discount on performance and valuation.
In terms of performance, in the past two years, facing the impact of a complex international environment, coupled with the increasingly fierce net weight of the hazardous waste industry and the imbalance of supply and demand structure, the company's operations have faced great challenges. From this performance, Hongcheng Environmental has returned to the revenue growth channel. If calculated based on the previous net profit margin of 20% and the current revenue level, the company's profits have at least more than one time growth space.In terms of valuation, constrained by the overall lack of liquidity in the Hong Kong stock market, Hongcheng Environmental Protection is currently undervalued. With the Federal Reserve initiating a rate-cutting cycle, the rise in the Hong Kong stock market's liquidity level will greatly alleviate this issue.
In summary, leveraging its leading position in the industry and a clear growth path under the trend of "carbon neutrality," the potential for both performance growth and valuation increase of Hongcheng Environmental Protection should not be overlooked. As the market environment gradually improves and the company's performance continues to be verified, the investment value of Hongcheng Environmental Protection is expected to be reassessed and recognized by the market.
- 25 September'24
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