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On July 15, Xizi Clean Energy (002534.SZ) opened high and closed low, and its stock price failed to continue its previous strong performance.

Last Friday, Xizi Clean Energy released its 2024 semi-annual performance forecast, and the company expects to achieve a net profit of 300 million to 380 million yuan in the first half of the year, a year-on-year increase of 922.66% to 1195.37%. Unexpectedly, the increase in Xizi Energy's net profit was mainly due to the company's sale of part of its shares in Kesheng Technology, which recognized a profit of 232 million yuan.

Lanfu Finance found that Xizi Clean Energy's transformation to clean energy was not smooth sailing, and the company's operating pressure increased sharply. For Xizi Clean Energy, the increase in orders in the first half of this year is a good sign. In the future, how to maintain and continue to develop new businesses and find new growth points will become the top priority.

Net profit is expected to increase significantly, does Xizi have a "secret weapon"?

On July 12, Xizi Clean Energy's stock price rose sharply, possibly due to the company's performance forecast. According to the company's disclosure, Xizi Energy Conservation will achieve a net profit of 300 million to 380 million yuan attributable to the parent company in the first half of 2024, a year-on-year increase of 922.66% to 1195.37%; it is expected to achieve a net profit of 75 million to 105 million yuan attributable to the parent company after deducting non-recurring items, a year-on-year increase of 215.65% to 341.91%.

Regarding the reasons for the expected performance growth, Xizi Clean Energy stated that it was mainly due to the income from the disposal of long-term equity investments in this period and the impact of increasing the gross profit margin of product delivery. In March 2024, the company recognized a profit of 232 million yuan from the sale of part of the equity of Ke Sheng Technology, which was a non-recurring gain or loss.

In fact, Xizi Clean Energy had sold its shares in Kesheng Technology for two consecutive years. It is understood that Kesheng Technology is a solar thermal power generation technology developer, mainly engaged in the technology research and development and industrial promotion of tower solar thermal power generation and molten salt energy storage.

In December 2022, Xizi Clean Energy transferred its 3% equity interest in Ke Sheng Technology through an agreement transfer, with a transaction price of approximately RMB 114 million. In December 2023, Xizi Clean Energy again transferred its approximately 4.30% equity interest in Ke Sheng Technology through an agreement transfer, with a total transaction price of RMB 183 million. After the completion of this equity transfer, Xizi Clean Energy holds approximately 3.25% equity interest in Ke Sheng Technology.

In the 2022 equity transfer, the transaction price of Ke Sheng Technology per share was 14 yuan, corresponding to an overall valuation of approximately 3.8 billion yuan. In the 2023 transaction, the transaction price of Ke Sheng Technology per share was 14.7 yuan, corresponding to an overall valuation of 4.253 billion yuan, an increase of approximately 453 million yuan in one year.

Moreover, both asset sales have contributed greatly to Xizi Clean Energy's performance. According to the disclosure, the equity transfer in 2022 will increase the company's net profit in 2022 by approximately RMB 74 million, while the transaction in 2023 will increase net profit by RMB 248 million.

It is worth noting that in March 2024, Xizi Clean Energy once again brought the same drama and obtained 232 million yuan in revenue by selling part of the equity of Kesheng Technology. In terms of the shortcut to obtaining equity investment returns, Xizi Clean Energy is definitely a master.

On July 12, Xizi Clean Energy’s stock price hit the daily limit after announcing its performance, but it plummeted on the next trading day (July 15). As of the midday close, Xizi Clean Energy fell 5.46% to 10.21 yuan per share.

Transition to clean energy, but operating pressure increases sharply

Xizi Clean Energy also disposed of a number of assets last year, including the sale of 22.23% equity of Zhejiang Zhongguang New Energy Technology Co., Ltd. and 3% equity of Hangzhou Zhongneng Optoelectronics Technology Co., Ltd., and its holding subsidiary Hangzhou New Century Energy and Environmental Protection Engineering Co., Ltd. plans to sell 51% equity of Hangzhou Lin'an Green Energy Environmental Protection Power Generation Co., Ltd.

In addition, Xizi Clean Energy also cancelled its subsidiaries including Xizi Yunda (Hainan) Clean Energy Technology Co., Ltd., Zhejiang Hangsheng Boiler Co., Ltd., and Hangzhou Boiler Plant Engineering Materials Co., Ltd.

In addition to obtaining considerable investment returns, continuously optimizing the asset structure and further focusing on the core business may be one of the important reasons why Xizi Clean Energy sells assets.

Xizi Clean Energy previously stated that the equity transfer is an adjustment and optimization of the company's assets and investment structure, which will help enhance asset liquidity, improve the company's internal management and capital operation efficiency, and further promote the development of its main business.

Public information shows that Xizi Clean Energy was founded in 1955. The company's predecessor was Hangzhou Boiler Co., Ltd., which mainly engaged in boiler products. It entered the A-share market in 2011. Since 2015, Hangzhou Boiler Co., Ltd. has successively planned to acquire Liangyun Environmental Protection, Ningbo Jiangnan, Industrial Boiler and other companies.

In addition to the original boiler equipment business, Hangzhou Boiler Co., Ltd. actively expands various business models such as overall solutions, new energy and energy storage business, EPC, and determines the "new energy + energy storage" development strategy to further focus on the field of clean energy. At the beginning of 2022, Hangzhou Boiler Co., Ltd. was officially renamed Xizi Clean Energy.

However, Xizi Clean Energy, which continues to promote the transformation of clean energy, is under increasing pressure on its operating performance. From 2021 to 2023, affected by factors such as rising raw material prices and fierce competition in the boiler industry, Xizi Clean Energy achieved revenue of 6.578 billion yuan, 7.344 billion yuan, and 8.079 billion yuan, respectively, up 22.83%, 11.64%, and 11.64% year-on-year; net profit attributable to the parent company was 420 million yuan, 204 million yuan, and 54.5819 million yuan, respectively, down 18.47%, 51.5%, and 73.23% year-on-year.

It is worth noting that Xizi Clean Energy suffered a single-quarter loss in the fourth quarter of 2023, the most in recent years. Regarding the performance in 2023, Xizi Clean Energy admitted that the boiler industry has been highly competitive in recent years, and the order gross profit margin has declined, which has affected the company's gross profit from the transfer of delivered products in 2023. The increase in the balance of contract assets last year has led to an increase in impairment losses.

The order volume has increased, where are the future opportunities?

Despite the increasing operating pressure, Xizi Clean Energy has continued to focus on the clean energy field and has achieved certain results, mainly reflected in the increase in order volume.

According to the company's disclosure, in the second quarter of 2024, Xizi Clean Energy's new orders totaled 1.983 billion yuan. In the first half of 2024, Xizi Clean Energy's orders totaled 6.995 billion yuan.

In its performance forecast announcement, Xizi Clean Energy pointed out that the company's order quality continued to improve, and its internal cost reduction and efficiency improvement measures had achieved certain results, with the gross profit margin of product delivery significantly improved.

It should be noted that Xizi Clean Energy's gross profit margin is still in the recovery period. Before 2021, Xizi Clean Energy's gross profit margin basically remained above 20%. With the rise in raw material prices and fierce competition in the boiler industry, the company's gross profit margin will decline significantly in 2022 and 2023, to 15.53% and 16.46% respectively, which is lower than the gross profit margin levels of Hailu Heavy Industry (002255.SZ), Huaguang Environmental Energy (600475.SH), and Dongfang Electric (600875.SH) in the same industry during the same period.

When it comes to future development, Xizi Clean Energy said that the company will, on the basis of consolidating the existing market share of traditional waste heat boilers, expand its clean energy business to various scenarios such as flexible transformation of thermal power plants, wind and solar energy storage, zero-carbon factories, and zero-carbon parks as the development focus. At the same time, the company will seize the opportunity to go overseas in 2024, vigorously expand overseas market orders, find new growth points for its main business, and improve the company's overall order quality.

Overall, Xizi Clean Energy's transformation to clean energy has not been smooth sailing. The company's operating pressure has been increasing in recent years, and the company needs to further increase its clean energy order volume and gross profit margin. Next, whether the company can successfully open up overseas markets is also an important basis for observing its growth potential.