Is Haixin Nengke’s investment logic still valid?

1. It is extremely important to verify the investment logic at the first time when the stock price falls sharply

To be honest, in the past few months when Haixin Nengke’s stock price plummeted and he stopped speaking publicly, one of the questions I thought about the most and asked myself the most was: Is the investment logic of this company still valid?

This was the most serious and urgent issue before me at the time. I had to soberly jump out of the overly optimistic expectation trap, smash all long-term and paper expectations, and concentrate resources and energy to verify the most Whether the underlying logic is still true, because this is the key point of whether the stock price will kill you after the crash, and also the foothold of whether there will be a chance for a comeback in the future.

Some investors tend to instinctively choose to passively lie down and hold passively for a long time after the stock is stuck, which is somewhat similar to the psychological characteristics of an ostrich. But I think this strategy carries huge investment risks, because if a company’s investment logic is falsified, its future is unpredictable, and sometimes it even falls into the abyss of doom. In this case, no matter how deep the hold-up is, I will choose to liquidate and leave the market as soon as possible.

Let me tell you a real case that happened to me. I bought Kangdexin at a price of 18.9 yuan per share at the end of May 2018. The stock fell to the limit the day after I bought it, and the trading was suspended on the third day until it resumed in November. During the suspension of trading, I attended the meeting of KDX’s new shareholders on August 3 at the Phoenix Hall on the second floor of the InterContinental Beijing Beichen Hotel. At the same time, Zhong Yu had been talking about the application and promotion of carbon fiber and naked-eye 3D and the company’s technology at the meeting. During this period, Du Wenjing’s subtle actions aroused my vigilance. During Zhong Yu’s rhetoric, Du Wenjing occasionally I went to pull Zhong Yu’s sleeve, I instinctively realized that Zhong Yu was lying. Soon after, I participated in another investor conference call hosted by Zhong Yu. The meeting focused on explaining the freezing of some of the company’s bank accounts. Zhong Yu said that he had a good relationship with the local government leaders, and the account freezing was very fast. It will be properly resolved, and this conference call further deepened my previous hunch that the company may be deliberately withholding important information. I then did not hesitate to place an order at the limit-down price at 8:00 p.m. on the day before the stock trading resumed to entrust a sell order for the next day, and every day thereafter until the fourth limit-down board finally opened. The average price cleared all the holdings in the hands, with a loss of 36.5%, avoiding the tragic end of the subsequent delisting at 0.20 yuan per share and basically being cleared to zero. At that time, I also operated simultaneously in the Snowball Group, and many Kang fans expressed their confusion. They should not be in such a hurry to make a move. Whether the fundamentals have deteriorated is still inconclusive. After the subsequent fraud incidents were exposed, many people have forever lost the favorable opportunity to admit their mistakes. The purpose of talking about this case is to deepen investors’ understanding. When the investment logic is falsified, it is the least expensive way to stop loss when the investment logic is falsified.

Therefore, it is not difficult to understand why I was so eager to verify whether the investment logic still holds true when the stock price plummeted and I realized that my previous understanding of the fundamentals had a major error.

2. The investment logic of Haixin Nengke when I built a warehouse in September and October 2020

Logic 1: The capital chain problem that caused the company’s stock price to plummet has been greatly alleviated. The major shareholder Hai Guotou has taken over 4.34 billion yuan of accounts receivable directly or indirectly and provided an additional 1.9 billion yuan of financial assistance , the amount is controlled, and the loan can be repaid at any time. At that time, it was judged that the company could survive, not die, and would not be delisted, so as to ensure that the investment would not be wasted in extreme cases.

Logic 2: The company’s strategic deployment of transforming into a biomass energy manufacturer in the future has achieved breakthroughs in technology research and development. The evidence is: the experiment of using the concept of suspended bed to transform the existing fixed bed reactor into a suspended bed and cooperating with the new catalyst developed to produce hydrocarbon-based biomass diesel has already started in 2020 on the existing 100,000-ton fixed bed in Hebi Huashi. It was a success on August 25, and it did not require extensive pre-processing of the feedstock. On this basis, the company has fully started the transformation of Shandong Sanju’s 400,000-ton biodiesel project. According to the information at that time, the upper limit of the production of hydrocarbon-based biodiesel from liquid waste biomass oil is about 4 million tons, and the net profit of several billion yuan can be obtained every year, and the potential market value space is about 10 times.

Logic 3: If Longyou’s million-ton suspended bed successfully realizes start-up and long-term operation, it means that the company’s core suspended bed platform technology has gained successful experience in large-scale commercial operation. technical barriers, the company’s prospects are undoubtedly bright. Considering that Hebi’s 158,000-ton suspended bed industrialization unit has been successfully started in July 2016, various raw material tests have been carried out since then, and long-term stable operation has been achieved. In the chemical industry, the reactor has been scaled up from 100,000 tons to one million There is not much technical risk in the ton level. Therefore, we analyze that the probability of success in the million-ton plant is relatively high.

Logic 4: The direct liquefaction of solid biomass has been tested at 158,000 tons in Hebi in June 2018. The test results were carried out by a third-party independent repeated test and evaluation by the State Key Laboratory of Multiphase Complex Systems, Institute of Process Technology, Chinese Academy of Sciences. Breakthrough in core technology and claim to be an economical replacement for petroleum-based products without relying on subsidies when the price of oil is around $70. Subsequently, in early 2020, the company started to add a solid biomass raw material companion and conveying system based on the Hebi Huashi suspended bed device, forming an industrial demonstration device with an annual production capacity of 10,000 tons, in order to improve the long-term cycle of direct liquefaction of solid biomass. Industrial production is verified. If this technology is finally successful, it will completely open the raw material bottleneck of biomass energy, which is a major technological revolution in the field of new energy.

3. Re-examination and verification of Haixin Nengke’s investment logic during the stock price crash in 2022

When the stock price fell to more than 6 yuan in the first wave and more than 5 yuan in the second wave, I still believed that there was no problem with the fundamentals. I was dumbfounded until the first quarterly report was announced. How could there be such a big gap with expectations? It shows that I have made major mistakes in fundamental tracking. This is an objective fact, and I must admit it. At this time, I urgently activated the emergency plan, and the first step was to comprehensively check whether the investment logic was still there.

Logic 3 and Logic 4 out of the four investment logics, I cut them out at the time, because these two things belong to the long-term future, and it is a question of how far this investment can go and how high it can fly. This is not a problem. What I was concerned about at the time, what I was most concerned about at the time, was the question of survival, whether this investment would face the fate of failure. The point is to examine and verify Logic 1 and Logic 2.

Regarding logic 1: the company’s accounts receivable dropped from a peak of 13.38 billion yuan in 2018 to 7.6 billion yuan in 2020, and further dropped to 2.38 billion yuan by the end of 2021. It should be said that the improvement in accounts receivable is more than I expected it when I bought it. In addition, the amount of financial assistance from Haiguo Investment has also been increased from 1.9 billion yuan before 2020 to 2.5 billion yuan after 2021, which ensures the normal operation of the company’s cash flow. Review conclusion: There is no problem with the logic of not dying. The job is relatively simple, but then again, being dead is just a life-saver in the extreme case of a major investment blunder, and if a company is left with only one reason to die, fools will continue to hold it.

Regarding logic 2: Verifying whether Shandong Sanju can pass the test became the core logic for deciding whether to invest or stay. On the day of the announcement of the first quarterly report, I called to inquire about the reason for the company’s first quarterly report loss, and the other party told me that Shandong Sanju and American Coking had the largest losses, and Sichuan Xinda and Jutao also suffered losses. I went on to ask, hasn’t Shandong Sanju been operating at 40%-50% load since October last year, why is there a loss? Under my questioning, the other party told the truth: In fact, from October last year to February this year, Shandong Sanju did not have stable production intermittently, but it has been producing continuously for a month since March this year. , and the pressure difference of the reactor is stable. To be honest, when I heard the news, I was quite surprised at the time. This blow made me realize that I was too careless in Shandong Sanjue before, and I only listened to the company’s management in the project tracking, and did not go to the grassroots to grasp the first-hand information of the project. Therefore, the next goal is to comprehensively investigate the real situation of Shandong Sanju, objectively evaluate the current situation and prospects of the project from the perspective of technology and economy, and the central idea is to be responsible for this investment, personal preferences, emotions, etc.

After the goal is clear, the next step is to form a team, break down the work, and assign tasks. Our working method is to make up for the sheep after the sheep has run out. Wherever the sheep escaped, we focus on replenishing the fences in these places. That is to say, starting from outside the company’s management, focus on investigating Shandong Sanju front-line employees, Shandong Sanju upstream and downstream partners, local authorities and window units. The information mentioned in the following article, unless otherwise specified, basically comes from the above-mentioned channels. I would like to express my heartfelt thanks to the team members for their hard work and dedication!

To be honest, if the conclusion drawn from this investigation is that the investment logic of Shandong Sanju is falsified, I will clear the position and leave the market, at least in stages.

Fortunately, Shandong Sanju passed my acid test this time, so I still choose to keep holding it. But in the future, I will be more cautious about the dynamic evaluation of Haixin Nengke, and the basic work will be done more solidly. Taking into account the space limitation, in this article, I will first outline the core conclusions and core speculations, and then I will divide into several articles according to different themes to further analyze the fundamentals of Shandong Sanju.

Three core conclusions and three core speculations of Shandong Sanju research are drawn:

Core conclusion 1: The company previously used the concept of suspended bed to transform the fixed bed reactor into a suspended bed, with the new catalyst developed with the research and development, and the process route and technical plan without deep pretreatment of raw materials. The driving demonstration in Shandong Sanju lasted for one year. It has been proved to be unfeasible in the middle, unless it is an authentic suspended bed, or no matter how to transform the fixed bed, the matching deep pretreatment device is indispensable. My judgment is that the company was overconfident in its own technology at that time, and the Hebi suspension bed test has not experienced the long-term operation test and hastily launched the Shandong Sanju project. The management has no motivation or willingness to deliberately mislead investors. This is difficult to completely avoid in the process of technological innovation. I hope that shareholders will adhere to the spirit of seeking truth from facts and give more understanding and tolerance to the staged failures in the innovation process, encourage them to put down their burdens and make bold innovations, and vent their dissatisfaction appropriately. Understandable, but it is best not to develop into malicious abuse and personal attacks.

Core conclusion 2: The complete operation cycle of Shandong Sanju started from the oil release on March 15 to the official start of the shutdown procedure on July 21, except for a brief shutdown in mid-May due to centrifuge failure (after all, it was an old equipment renovation) for 2 days. In addition, the project as a whole has always been in a continuous and stable operation state. During the period, the cumulative operation time was 125 days, and the cumulative production of high-freezing point hydrocarbon-based biodiesel was 63,700 tons, with an average daily output of 510 tons. The project successfully achieved the first long-term stable operation, allowing shareholders to see the dawn of hope.

Core conclusion 3: Further analysis of the distribution of the average daily output in each month from March to July shows that, except for the significantly lower average daily output in March when the machine was just started and the lower average daily output in May when the centrifuge was down for 2 days due to the failure of the centrifuge, The average daily output in the three months of April, June and July was 597 tons, which fluctuated around 600 tons. Even in the last month of this operation cycle (the first 20 days of July), the average daily output was relatively high. The distribution characteristics of this set of data preliminarily dispelled investors’ general concerns about the coking problem of the reactor hearth, because if the coking is serious, its operating characteristics are that the catalyst activity is high and the output is high when the project is just started up. The activity (resulting in coking of catalyst debris in the hearth, increasing the reactor pressure differential, and decreasing hearth flux) yields lower yields.

Core speculation 1: Substitute the profit data of Shandong Sanju in the second quarter of this year into the project financial model I built for back-testing analysis, and conclude that under the current business model, product series and price level, Shandong Sanju’s break-even point is The annual output is 100,000 tons of high freezing point hydrocarbon-based biodiesel, that is, 25% capacity utilization rate. Through further financial sensitivity analysis, it is concluded that under the current business model, product series and price level, the profitability of the project with an annual output of 200,000 tons, or 50% capacity utilization, and an annual output of 300,000 tons, or 75% capacity utilization The capacity is about 1100 yuan/ton and 1450 yuan/ton respectively. It must be pointed out that due to the accuracy of the basic data I have and the lack of time for empirical backtesting and analysis, the above financial calculation results may have a large error with the actual profitability of the project. In the end, the data officially disclosed by the company shall prevail. Investors further track project performance in investment practice.

Core speculation 2: Shandong Sanju will carry out a series of work to increase production and quality in the follow-up, mainly including: ① a new set of anti-corrosion equipment (which was put into operation at the end of August), which is expected to increase part of the production capacity and prolong the service life of the equipment; ② new construction A set of raw material advanced pretreatment device (it is expected to be put into operation before the end of this year, when the whole production system can be connected without downtime), it is expected to be of great help to the increase of production capacity, and the continuous operation time of one start-up cycle can be increased to one. In about 2000, it will reach the world’s advanced level; ③ Further optimization and transformation of the reactor is expected to further tap the production capacity potential; ④ Newly build an isomerization unit to produce low-condensation products and increase the added value of products. After the above four tasks of improving quality and production are completed, Shandong Sanju’s profitability and product competitiveness will reach a new level. Investors are advised to further track the progress and implementation effects of the above measures, make bold assumptions and verify carefully.

Core speculation 3: It is expected that the newly built biomass oil project of Haixin Nengke will adopt the suspended bed platform technology. Based on the fixed bed technology, the company temporarily developed it to solve the accounts receivable problem of the Haiyou project. The road to bed has basically gone through. Throughout the country, although there are more and more companies claiming to have launched hydrocarbon-based biodiesel projects, apart from Elcometer, have you seen any company that has achieved high-load, long-term stable production? Known investors can be listed in the discussion area. As for Elcometer, the annual production capacity is 350,000 tons. In the first half of this year, 83,000 tons of HVO and 7,000 tons of bio-jet fuel are produced. The HVO capacity utilization rate is 47%, which is slightly lower than the current capacity utilization rate of Shandong Sanju; Judging from the fact that the proportion of jet fuel in HVO is less than 10%, it is obvious that the design condition has not been reached, indicating that the adjustment has not been completed. This shows from the side that it is not easy to achieve and stabilize the production of hydrocarbon-based biodiesel, and it is also conducive to companies that have crossed the technical threshold to build a relatively high technical barrier.

$Haixin Nengke(SZ300072)$

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