ZK International (NASDAQ: ZKIN) shares have soared in Q4, evidenced by an increase of over 90% so far during the period. Despite the run and healthy profit-taking aside to start the New Year, there may be more good news from an investor's perspective- the path of least resistance for ZKIN shares looks to be paved higher. That's not an overly bullish sentiment, either. In fact, it's warranted, considering that ZKIN looks better positioned than ever operationally and fundamentally to accrue value from accelerating an ambitious 2024 agenda. Plenty supports the case.
To close 2023, ZKIN announced securing an $8 million bid in collaboration with Chongqing Gas Group, which does more than accelerate revenue growth; it strengthens ZKIN's position as a critical supplier and contractor in the Western China gas market. It's no small opportunity, and certainly one with the potential to get substantially larger, noting that Chongqing City is the fourth largest Chinese city, with an estimated urban population of 16.34 million. Indeed, ZKIN's potential to earn significant add-on deals is speculative. However, it's a presumption supported by ZKIN's strengthening position to capitalize on near and long-term opportunities by leveraging vast industry and specialized project expertise. In doing so, ZKIN can do more than benefit the city's municipal gas piping infrastructure projects; it can shift an already fast growth pace into a higher gear. That expectation is based on what's happening in China and, more importantly, where ZKIN is focused.
Particularly those rev-gen opportunities inherent to China's Ministry of Ecology and Environment's 2020 initiative, which intends to replace coal with clean energy in the heating systems of 7.09 million households in the northern provinces. That change is expected to create enormous demand for natural gas and gas piping infrastructure. Thus, the expanding relationship with Chongqing Gas Group could become a massive value driver in 2024.
Contributing Value Drivers Support The Q4 Rally
Keep in mind that Chongqing Gas Group Co., Ltd., as it is, is no small player in the Chinese market. Listed on the Shanghai Stock Exchange, it has a market capitalization of roughly $1.5 billion, generating annual sales averaging roughly $1.22 billion. However, like ZKIN, they expect to get bigger faster; its mission fueled by pioneering the urban pipeline gas business over the past two decades and becoming a vital contributor in building the country's energy infrastructure. Moreover, noting Chongqing is a flagship division of China Resources Gas Group Limited, that growth could happen sooner rather than later. If so, ZKIN could ride on some excellent coattails.
In fact, that relationship alone could keep the momentum at ZKIN shares' back, even expediting a move to reclaiming its 52-week high of $1.35, over 35% from current levels. But as potent as this deal is, it's not the only value driver; it's far from it. Other deals contribute to exposing a valuation disconnect between the ZKIN share price, its assets, and performance. So does regaining listing compliance, which removes any dark cloud of continued NASDAQ listing uncertainty. That's not all. Private investors have provided a significant financial vote of confidence, shown by a $5 million above-the-market passive Share Purchase Agreement (SPA) from the CF Opportunity Fund, Ltd.(CF). The terms of that deal are company and shareholder-friendly, with stock purchases related to that agreement fixed at $1.70, about 73% higher than their current.
Additionally, the deal provides more than a financial boost; it gave investors a potential behind-the-scenes peek at what may be in store for ZKIN in 2024, noting that many agreements of this type are made only after considerable due diligence. What CF may have seen could combine well with published performance — particularly topline growth. Most recently, ZKIN reported comparative six-month revenues in 2023 increased by over 15% to $49,655,399, a $6,764,742 jump over the same period totals last year. That gain comes despite challenging market conditions such as the increased cost of raw materials, especially nickel, a vital component of stainless steel and a key ingredient to many of ZKIN's product production.
Another factor to consider is that despite challenging market conditions, ZKIN's steepening revenue trajectory shows that the company can manage the range of market conditions. Investors showed their support for that ability by bidding company shares higher. And remember, market analysts know the intimates of the sectors they cover. If ZKIN was not effectively managing its current projects or capitalizing on new opportunities, its share price wouldn't be close to reclaiming its yearly highs. It is. And it's a well-deserved target, with an appreciating trajectory supported by a strengthening recovery in domestic demand, leading to an overall increase in sales volume — a trend that should continue.
Expanding An International Business Footprint
That expectation is also warranted. Keep in mind that despite ZKIN's roughly $1.00 stock price, the company is well-recognized as an industry leader in manufacturing and engineering high-performance stainless steel products used in sophisticated water or gas pipeline systems. That unique ability to serve specialized demand is doing what it should- leading to increasing market share that results from urban infrastructure project planners, real estate developers, local governments, and municipalities need to bring reliable and durable gas and water transmission systems to their communities. Not only can ZKIN deliver what's required, they can provide better solutions.
Often, ZKIN product differences are distinct advantages over the competition, including double-press thin-walled stainless steel tubes and fittings, carbon steel tubes and fittings, and single-press tubes and fittings. These unique offerings should continue to drive market share. And not just in its primary Chinese market but also in Europe and Southeast Asia, where the company continues to work at expanding its business footprint. Penetrating new markets, local and international, could happen faster than many expect, resulting from ZKIN supplying the next generation of clean water solutions with innovative, high-quality piping infrastructure solutions supported by robust intellectual properties.
ZKIN holds 33 patents, 21 trademarks, 2 Technical Achievement Awards, and 10 National and Industry Standard Awards. They are also Quality Management System Certified, Environmental Management System Certified, and a National Industrial Stainless Steel Production Licensee. Those recognitions and permissions allow ZKIN to more quickly and efficiently tap into the multi-billion dollar Gas and Water sectors that need specialized and environmentally compliant steel piping — and the company is capitalizing on those potentials.
Impressive Client List And Services Resume'
ZKIN has supplied stainless steel pipelines for over 2,000 projects, including the Beijing National Airport, the "Water Cube," and "Bird's Nest", venues for the 2008 Beijing Olympics. Passing the rigorous standards at those locations was not a one-off win. Its over 2,000 other clients, large and small, receive the same superior properties and durability of its steel piping, providing an accessible solution for delivering high quality, highly sustainable, and environmentally sound drinking water to its clients in China, Europe, East Asia, and Southeast Asia. At many of these client locations, time is of the essence.
The urbanization of China is an excellent example of why. Despite being home to roughly 20% of the global population, the country only has 7% of the world's freshwater resources. Potentially worse, within the next 10-20 years, China is projected to move roughly 250 million people (more than the total U.S. urban population) into cities — some of which have yet to be built, and those that have begun still lack basic starting infrastructure. Adding that count to the current urban population, China must procure the water services infrastructure to serve approximately 900 million people, or roughly 13% of the world's population. However, that only accounts for the urban crowd. The country will also need to provide water for 400 million rural residents and meet the demands of the agriculture, energy, and manufacturing sectors.
That urgent need makes ZKIN timely to a massive opportunity. While not earning the headlines deserved in the States, the seismic population shift in China is already negatively impacting the country's urban infrastructure, contributing to an estimate that about 61% of groundwater and 28% of key rivers are classified as unfit for human contact. It gets worse. Research indicates that over 20% of the water supply is so polluted that it cannot be used for industrial or agricultural use, causing an estimated 6% reduction in annual GDP, according to the World Bank. The good news is that China isn't turning a blind eye to the current problem or its potentially worsening future.
Enhancing A Massive Energy and Services Infrastructure
That can be excellent news for ZKIN and its investors. Reports show that the Chinese government has earmarked $610 billion to spend on water infrastructure improvement starting in 2011, which is expected to be completed in early 2030. Groundwork completed from its $68 billion South-to-North Water Diversion Project has provided an excellent start to avoiding humanitarian catastrophe. The completed project will link China's four main rivers with more than 1,800 miles of pipeline, diverting water from the south of China to population centers in the north. The potential of that massive program adds to other already contributing value drivers.
Current ZKIN projects include working with the China Railway First Bureau Group, Zhuhai Water Environment Holding Group, and Changsha Water Group to strengthen and enhance their services infrastructures. They also announced renewing a contract with Towngas China Company Limited, one of Asia's largest gas and utility suppliers, entering an agreement with Shenzhen Water Group to replace the aging water supply infrastructure within its city and securing a $1.2 million contract with The XingRong Group, one of the largest water treatment and supply companies in Western China.
While ZKIN intends to earn significant revenues from those projects, they are monetizing others from state-owned water supply companies engaged in substantial water supply and construction projects. And they could score plenty more. That's not an overly ambitious expectation, considering that ZKIN has been a vital contributor by developing specialized stainless steel pipes for direct drinking water in the country. They are so good it's led to ZKIN being authorized to draft many national standards of stainless steel pipe and clamp pipe fitting. That designation can more than expedite penetrating the Chinese markets; it accelerates monetizing opportunities in Europe and the United States by meeting or exceeding their respective requirements. That makes ZKIN one of the few manufacturers that can already produce products that meet specific geographic market compliance measures.
Seizing On A Valuation Disconnect
That difference can be a game changer in terms of growth for ZKIN. Moreover, it adds to a list of current and expected value drivers that should drive 2024 revenues appreciably higher. It's essential to remember that few companies can do what ZKIN does, and an even more select few have access to the multi-billion dollar contracts awarded by China and other developing countries and companies. Still, access to opportunity is just one part of the value proposition. Having the professional ability to seize them is the more significant consideration. ZKIN can.
That matters. Remember, every nation — developed or not — is upgrading infrastructure to serve shifting populations, meet technological changes, and remain proactive in safely and effectively meeting current and future societal needs and demands. That transition should keep ZKIN in a sweet spot of opportunity. Better still, with ZKIN continuing to innovate, maintaining superior product quality, and forming strategic partnerships, that position can be leveraged not only in 2024 but for decades. In other words, the Q4 surge in the company's stock may be the precursor to more significant gains this year.
Frankly, combining the sum of ZKIN's current parts with those expected, even the most bullish expectations could prove conservative. In other words, using a performance-based analysis...current prices may be a launchpad, not a pedestal in 2024.
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