SeeThruEquity Initiates Coverage on ZK International Group Co. Ltd. (NASDAQ: ZKIN) with a Price Target of $12.24
NEW YORK, NY / ACCESSWIRE / December 13, 2017 / SeeThruEquity, a leading independent equity research and corporate access firm focused on small-cap and micro-cap public companies, today announced it has initiated coverage on ZK International Group Co. Ltd. (NASDAQ: ZKIN) with a 12-month price target of US $12.24.
The report is available here: ZKIN Initiation Report.
We initiate coverage on ZK International Group Co. Ltd. (Nasdaq: ZKIN, $8.11) with a price target of $12.24. ZKIN is a manufacturer and designer of high performance stainless steel piping and fittings for the water and gas distribution sector in China. Currently, most of the households and apartment buildings in China use pipes made of polymerized vinyl chloride (PVC), which do not meet safe standards of drinking water supply. The growing awareness among Chinese consumers and also the government is leading to a shift to stainless steel pipes and fittings for water distribution. Currently, stainless steel makes up only about 3% of water pipeline in China, reflecting a high growth rate potential for ZKIN.
The Company currently has a robust intellectual property portfolio, holding 28 patents with awards for its innovative pipe couplings in stainless steel. That gives ZKIN a competitive edge that should reflect in capturing higher market share over time. The Company has also become an approved "qualified supplier" to six of China's water and gas transmission companies. Further, a $610 billion commitment by the Chinese government to improve the water infrastructure presents a significant tailwind for ZKIN. The recent project wins (Shenzhen Water Group and Huawei Technologies) should support sales momentum in FY18 and beyond. ZKIN recently increased its consumer plumbing division sales force by 227% YOY to cater to rising demand for its patented pipeline products. We see ZKIN as a speculative play on the expanding water and gas pipeline infrastructure in China, which is seeing increasing acceptance of stainless steel. Going forward in FY18, we expect ZKIN to increase revenues approximately ~24% to ~$51 million through new project wins and increasing acceptance on use of stainless steel pipes and fittings by real estate developers and government.
Highlights from the report include:
Under penetration of stainless steel pipes in water distribution
Currently, most of the households and apartment buildings in China use pipes made of polymerized vinyl chloride (PVC), due to its lower cost. However, these materials do not meet safe standards of drinking water transmission. In some developed countries, stainless steel had been widely accepted as the best material for such application. Germany and Japan, for instance, have 80% and 90% of their water pipe networks on stainless steel, respectively, while the percentage in China is around 3%. We believe lack of penetration presents significant opportunity for ZKIN.
Urbanization of China to fuel growth for quality water infrastructure
China is home to 20% of the global population yet only has 7% of the world's fresh water resources. Additionally, of the 1.4 billion population, only 3% of Chinese citizens have access to drinking water in their homes. The Ministry of Water Resources notes that out of 663 cities in China, more than 400 are suffering from water shortages, with 110 classified as 'severe'. China is projected to move roughly 250 million people (more than the total US urban population) into cities within just the next 10- 20 years. This will bring total urban population to ~900 million people, or roughly 13% of the world's population.
The seismic shift in population is having a significant impact on China's urban infrastructure. According to statistics, 61.5% of group water and 28.8% of key rivers are classified as unfit for human contact. Over 20% of water supply is already unfit for human consumption. The Chinese Government has recognized this and has set aside $610 billion, to spend on water infrastructure between 2011 and 2030. The government spending presents a major tailwind for ZKIN.
Natural gas infrastructure to aid demand for stainless steel pipes
Gas is China's fastest growing major fuel, with demand quadrupling in the past decade. Currently, natural gas accounts for ~6-7% of China's energy demand, double the market share in 2007. The Chinese government plans to replace coal in non-power sectors with natural gas or electricity. The government is aiming for natural gas to be 10% of energy by 2020. This bodes well for gas pipes and fittings suppliers such as ZKIN.
Initiate coverage with a price target of $12.24
We see ZKIN as a high risk and high reward play on the expanding water and gas transmission infrastructure in China, which is witnessing a mix shift to stainless steel pipes and fittings. The target of $12.24 assumes that the regulatory tailwind will result in further expansion of the market and the company is successful in executing its organic growth strategy. A key risk includes any adverse regulatory stance that could materially damage company growth prospects.
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About ZK International Group Co. Ltd.
ZK International is a leading manufacturer and engineer of high-performance stainless steel products for projects that require sophisticated water or gas pipeline systems. The products manufactured by the company include: 1) Steel Strip, 2) Steel Pipe, 3) Light Gauge Stainless Steel Pipe (LGSSP), and 4) Pipe Connections and Fittings. The products are used across a broad range of applications, including water and gas transmission within urban infrastructural development, residential housing development, food and beverage production, oil and gas exploitation, and agricultural irrigation. The Company owns 28 patents, 21 trademarks, 2 Technical Achievement Awards, and 10 National and Industry Standard Awards. For more information, visit www.zkinternationalgroup.com.
About SeeThruEquity
Since its founding in 2011, SeeThruEquity has been committed to its core mission: providing impactful, high quality research on underfollowed smallcap and microcap equities. SeeThruEquity has pioneered an innovative business model for equity research that is not paid for and is unbiased. SeeThruEquity is the host of acclaimed investor conferences that are the ultimate event for publicly traded companies with market capitalizations less than $1 billion.
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