After the transfer board, PIZU GROUP (09893) experienced a sharp drop for three consecutive days, is this a good opportunity to exit?

Over the years, trading in the Hong Kong Growth Enterprise Market (GEM) has been inactive. Unlike the Nasdaq and mainland stock market growth enterprise boards, the Hong Kong GEM market not only lacks investor attention, but liquidity and overall valuation are much lower than other markets. Although the Hong Kong Stock Exchange has been actively promoting GEM reforms in recent years to support the listing and financing of high-quality small and medium-sized enterprises, the results seem to be limited. Therefore, many companies still choose to list on the main board to improve liquidity, PIZU GROUP is one of them. On October 9, 2024, PIZU GROUP submitted an application to the Stock Exchange for approval to list and trade shares on the main board. Recently, PIZU GROUP's application to transfer to the main board has been approved by the Hong Kong Stock Exchange, and trading under the code 09893 began on February 18, 2025. Regarding this successful transfer, PIZU GROUP pointed out that the stricter listing requirements and corresponding premium position of the main board will be a recognition of the company's existing business performance and achievements, thereby enhancing the company's ability to attract high-quality customers, suppliers, business partners, seize new business opportunities, and attract and retain talent. On the other hand, the main board will also attract a wide range of professional, institutional, private, and public investors from international, regional, and local markets, providing a better liquidity environment for shareholders and potential investors. However, after completing the transfer, PIZU GROUP fell into a three-day decline. It is noted that the company's stock price started to decline on February 19, the day after the transfer to the main board, and has already plummeted by over 20% in just three days. So, as the first company to successfully transfer to the main board under the new GEM regulations, how promising is PIZU GROUP? Let's start by looking at the company's fundamentals. Dual drivers of "civil explosives + mineral resources" It is understood that PIZU GROUP is mainly engaged in the production and sales of explosives and provides blasting operations and related services in China and Tajikistan, as well as mining, processing, and sales of mineral products in China. In the 2022 fiscal year, the company achieved revenues of 16.37 billion, 14.94 billion, 13.66 billion, and 8.59 billion in the 2023 fiscal year, 2024 fiscal year, and the first half of the 2025 fiscal year. The company's business is mainly divided into two operating segments: the trade and blasting services of explosives and mining operations. In terms of the manufacturing and sale of civil explosives, the company mainly manufactures two types of civil explosives, emulsion explosives, and ammonium nitrate explosives, which can be used for mining blasting, outdoor blasting, underground blasting, rock blasting, as well as civil and infrastructure construction. The company has production facilities in Inner Mongolia, China and Tajikistan. It should be noted that revenues from this business have shown a downward trend in recent years, with revenues of 7.98 billion, 7.44 billion, and 7.15 billion coming from this business in the 2022 fiscal year, 2023 fiscal year, and 2024 fiscal year respectively. However, in the first half of the 2025 fiscal year, this business has regained momentum, increasing from 3.59 billion in the same period last year to 4.48 billion. In blasting operations and related services, the company mainly provides services based on customer needs, including drilling, rock spraying, drilling and blasting, and blasting engineering design. In recent years, revenues from this business have seen a significant decline. Revenues from blasting services were 6.39 billion, 3.81 billion, and 1.36 billion in the 2022 fiscal year, 2023 fiscal year, and 2024 fiscal year. In the first half of the 2025 fiscal year, revenue from this business further decreased from 63.623 million in the same period last year to 59.952 million. While revenues from blasting-related businesses have fluctuated, the company's mining business has continued to develop positively. It is understood that PIZU GROUP's mining operations mainly include two mining projects: the Anhui Huangtun Pyrite and Copper-Gold Poly-metallic Mining Project (referred to as the "Anhui Jinding Project") in Anhui, China, and the Tibet Bangbu Molybdenum-Copper Project (referred to as the "Tibet Tianren Project") in Tibet, China. Currently, revenue from this business mainly comes from the Anhui Jinding Project. According to the announcement, the Anhui Jinding Project has been in commercial production since August 2021, with main products including pyrite, copper concentrate, iron concentrate, and gold. Revenue from this project was 2 billion, 3.7 billion, and 5.16 billion in the 2022 fiscal year, 2023 fiscal year, and 2024 fiscal year respectively. In the first half of the 2025 fiscal year, revenue from this business further increased to 3.51 billion, approaching the full-year level of the 2023 fiscal year. As of March 31, 2024, the estimated mining life of the Huangtun mining area under the Anhui Jinding Project is 16 years, with an estimated ore reserve of approximately 15.22 million tons. The Tibet Tianren Project was established in 2006 and was subject to review in 2014 due to failure to comply with environmental procedures. Since PIZU GROUP acquired the controlling rights of the project in December 2021, the restoration work of the Tibet Tianren Project has gradually started, and it is expected to enter the formal trial production phase as early as 2027. It is worth mentioning that, despite the declining revenue in the fiscal year, the company's profitability has been improving. In the fiscal years 2022, 2023, and 2024, the company achieved gross profit margins of 29%, 29%, and 42%, and net profits of 115 million, 88.021 million, and 131 million. The company explained that the improvement in profitability in the 2024 fiscal year was partly due to the decline in raw material prices and increased sales volumes, improvement in the gross profit margin of explosives sales, and the overall increase in the average selling price of concentrate ores, as well as the implementation of the Anhui Jinding Mining Carbon-Pulp Gold Project, which also improved the gross profit margin of concentrate sales. In addition, the proportion of income from the low-margin blasting service business has decreased. Strengthening of civil explosives industry prosperity Although the overall performance of the company has been volatile, from an industry perspective, with strong policy constraints, the concentration of the civil explosives industry has been increasing, and it is currently in a period of prosperity. The civil explosives industry is a highly regulated industry with high professionalism, technical requirements, and safety standards. According to data released by the China Explosive Materials Industry Association, in the first half of 2024, the civil explosives industryThe overall trend of the explosive industry is showing a downward trend in trading volume. During the period, the production value of the explosive industry's production enterprises totaled 19.255 billion yuan, a year-on-year decrease of 5.49%; achieving a main business income of 20.317 billion yuan, a year-on-year decrease of 10.62%. The cumulative production and sales volume of industrial explosives by production enterprises in the explosive industry were 2.0718 million tons and 2.0624 million tons, respectively, a year-on-year decrease of 2.96% and 2.71%. However, driven by the continuous decline in prices of main raw materials and the increase in demand in the western region market, the industry's overall profits have remained stable. Data shows that in the first half of 2024, the explosive industry achieved a total profit and tax revenue of 6.785 billion yuan, a year-on-year increase of 11.47%; achieving a total profit of 5.173 billion yuan, a year-on-year increase of 16.22%.The Ministry of Industry and Information Technology issued the "14th Five-Year Plan for the Safe Development of the Civil Explosives Industry", proposing to adjust and optimize the industry structure, continue to promote enterprise restructuring and integration, support leading enterprises in the industry to implement cross-regional, cross-ownership restructuring and integration, and reduce the number of production enterprises to within 50. In addition, it is proposed to optimize the capacity layout, and in principle, no new capacity for industrial explosives, industrial detonators, and other excess capacity of civilian explosive products will be added. Combining the resolution of excess capacity and optimization of industrial layout, enterprises are encouraged to release capacity in an orderly manner based on market demand, and guide excess capacity to exit faster. The proportion of on-site mixed explosives production capacity permitted for enterprises will continue to increase, with the ratio increasing from 30% to 35%. It is emphasized that by 2025, the top 10 civil explosive companies will account for more than 60% of the industry's total production value, with the goal of forming 3-5 large integrated civil explosive enterprises. Against the backdrop of almost no change in industrial explosive production capacity permits, ongoing mergers and acquisitions within the industry will continue to increase industry concentration, which is favorable for participants like PIZU GROUP. However, it is worth noting that many companies listed on the GEM have proposed to transfer to the main board mainly because their stocks lack liquidity, trading is weak, and their market value does not reflect their value. However, even after transferring, the situation may not necessarily change. As for PIZU GROUP specifically, although the company achieved its "transfer dream" in just six months, the post-transfer performance of PIZU GROUP has not been as brilliant as expected. In addition, the company's performance has fluctuated, and although the civil explosives industry is developing well, PIZU GROUP's revenue from the civil explosives business has been declining, making it uncertain how successful the company will be. In the face of such an uncertain future outlook, investors are likely to lose confidence in PIZU GROUP's future performance, which may be the reason for the recent decline in the company's stock price.