Summary of the Conference Call for Sains Industry and Company Overview - **Company**: Sains - **Industry**: Environmental protection, mining, and new materials Key Points and Arguments - **Strategic Transformation**: Sains is shifting from heavy metal pollution control to a dual focus on mining environmental protection and new materials, indicating significant future growth potential, especially in the areas of flotation reagents and rare metal recovery [2][4][31] - **International Market Growth**: Revenue from overseas customers increased by 152% year-on-year, with total overseas revenue accounting for 30% of main business revenue, reflecting the effectiveness of the company's globalization strategy [2][6] - **Agricultural Chemicals Performance**: The agricultural chemicals segment, particularly Longli Chemical, saw revenue and net profit growth of 50% and 80% respectively, contributing significantly to profit growth [2][7] - **Resource Recovery Technology**: Sains employs a new adsorption and extraction technology that offers higher recovery rates and lower costs, with installations at several smelting plants. The company aims to secure a significant market share in rare metals through exclusive agreements [2][9][10] - **High-Purity Sodium Sulfide Project**: The first phase of the 20,000-ton project is expected to generate an annual net profit of approximately 10 million yuan, with significant profit contributions anticipated upon expansion to 40,000 tons [2][25] - **Flotation Reagents Expansion**: Longli Chemical plans to expand production to 12,000 tons, aiming to become the largest production base globally, with expected net profits exceeding 100 million yuan at full capacity [2][23] Financial Performance - **2025 Half-Year Results**: Sains reported a revenue of 423 million yuan, a 19% increase year-on-year, but a 57% decline in net profit due to the absence of previous investment gains from acquisitions [4][3] - **Overall Revenue Projection**: The company expects total revenue to reach 1.2 billion yuan for the year, with a net profit growth of over 20%, driven by higher margins from reagents and operational services [3][8] Market and Business Segment Insights - **Business Segment Performance**: The overall gross margin decreased by 2 percentage points, with the comprehensive solutions segment revenue dropping by 50% due to fewer large projects. Product sales and operational services, however, showed strong growth [5][6] - **Contractual Revenue Recognition**: There is 126 million yuan in contract performance costs in inventory yet to be recognized as revenue, with expectations for the comprehensive solutions business to maintain around 400 million yuan in revenue for the year [8] Future Plans and Developments - **Expansion Plans**: Sains plans to expand production capacity based on market demand, with a target completion date for additional capacity set between late 2026 and mid-2027 [16][22] - **Acquisition and Market Expansion**: The company is pursuing acquisitions in Europe to enhance its market presence, with a focus on expanding its reagent production capabilities [22][24] - **Technological Advancements**: Sains is committed to continuous R&D investment, particularly in the extraction of lysine and high-purity sodium sulfide, aiming for higher product purity and profitability [17][31] Additional Important Insights - **Currency Risk Management**: The finance department has established a team to manage currency structure and exchange rate fluctuations, with foreign currency income expected to exceed 50% of total revenue in the future [29] - **Employee Incentives**: A stock incentive plan has been approved and is set to be implemented, aimed at aligning employee interests with company growth [30] - **Long-term Growth Strategy**: Sains is focused on stable growth and technological innovation, with a strategic shift towards materials and chemicals expected to be completed by 2026 [31][28]

Core Viewpoint - The acquisition of a 61% stake in Fujian Zijin Mining Reagent Co., Ltd. by Sains is under scrutiny due to a significant valuation discrepancy, resulting in a goodwill of 169 million yuan, and the absence of performance guarantees in the deal [1][10]. Group 1: Acquisition Details - Sains plans to use its own funds of 183 million yuan to acquire the 61% stake in Zijin Reagent, which will make it a wholly-owned subsidiary [2]. - The previous acquisition of a 39% stake in Zijin Reagent in June 2019 was valued at only 80 million yuan, highlighting a valuation increase of 2.75 times in the current transaction [1][5]. - The acquisition is Sains' first since its listing on the Sci-Tech Innovation Board in November 2022, where it raised approximately 455 million yuan [2]. Group 2: Valuation Concerns - The valuation of Zijin Reagent has raised questions, as its equity value increased from 79.44 million yuan in 2019 to 90.73 million yuan in 2023, a mere 14.21% growth, while the overall valuation surged to 300 million yuan [5][6]. - Sains compared Zijin Reagent's valuation with that of Chongqing Kangpu Chemical Industry Co., Ltd., which has a dynamic price-to-earnings ratio of 21.858, suggesting that Zijin Reagent's estimated value could be higher than the transaction price [6]. Group 3: Financial Performance - Zijin Reagent's net profits from 2020 to 2022 were 8.05 million yuan, 8.76 million yuan, and 10.43 million yuan respectively, with an expected net profit of 20.52 million yuan for 2023 [7]. - The significant increase in expected profits for 2023 has prompted inquiries into the reasons behind this change and its alignment with comparable companies [7]. Group 4: Related Party Transactions - The acquisition involves related parties, as Zijin Mining Group, a major stakeholder, has previously committed to minimizing unnecessary related transactions with Sains [8][9]. - The transaction is expected to increase related party transactions post-acquisition, raising concerns about the fairness and necessity of the deal [9]. Group 5: Goodwill and Performance Guarantees - The acquisition will result in a goodwill of 169 million yuan on Sains' balance sheet, with the exchange not including performance guarantees, which has drawn criticism [10]. - The absence of performance commitments raises questions about the protection of shareholder interests and the rationale behind the timing of the acquisition [10].