ZK International (NASDAQ: ZKIN) shares have shifted into rally mode, evidenced by an over 139% surge since the start of November to its current $1.22. However, that impressive leap may be the precursor to more significant gains, especially on the heels of ZKIN regaining Nasdaq minimum bid compliance that supports, even justifies, an appreciable upside move, an expectation in line with eliminating listing uncertainty. The better news about reclaiming the Nasdaq price threshold is that ZKIN has been able to cure the deficiency organically, unlike the reverse split route taken by most microcap companies.
That difference alone could expedite ZKIN stock’s progress in reclaiming its 52-week high of $1.34, now only about 10% higher than its current level. But that's not the only factor driving near-term optimism. A more significant reason to take advantage of a disconnect between the ZKIN share price and performance is that, if there were potential dilution fears, they've been quieted 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 indeed company and shareholder-friendly. In fact, with share purchases related to that agreement fixed at $1.70, about 39% higher than their current, CF provided more than a financial boost; it gave a decidedly bullish vote of confidence.
That's not surprising, considering its triple-digit percentage share price run is supported by tangibles — 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.
Effectively Managing Turbulent Market Pressures
Still, as ZKIN's steepening trajectory for revenues and share price shows, they can manage the situation well. Remember, market analysts know the intimates of the sectors they cover, and if ZKIN were not effectively managing its current projects or capitalizing on new opportunities, its shares wouldn't be in close proximity to its yearly highs. Having that metric within its sights is no coincidence.
It results from investors responding well to ZKIN shifting its sales strategy to minimize the impact of higher costs for raw materials by increasing its weighted average selling price during the first half of its fiscal year. However, a more significant contribution that is undoubtedly worthy of investor attention is that ZKIN said a considerable part of its revenue growth comes from a strengthening recovery of domestic demand. That's led to an overall increase in sales volume — a trend that should continue.
Keep in mind that despite its microcap price, ZKIN is recognized as an industry leader in the manufacturing and engineering of high-performance stainless steel products used in sophisticated water or gas pipeline systems. The company’s unique ability to serve specialized demand is increasing its market share among urban infrastructure project planners, real estate developers, local governments, and municipalities that need to bring reliable and durable gas and water transmission systems to their communities. ZKIN produces a range of products that offer 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. Its unique offerings should continue to drive market share, not just in its primary Chinese market but also as the company expands its presence in Europe and Southeast Asia.
Maximizing Expertise, IP, and Market Position
Penetrating those new markets could happen sooner than later, noting that ZKIN is supplying the next generation of clean water solutions with innovative, high-quality piping infrastructure solutions supported by robust intellectual properties. While more may be coming, ZKIN currently 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 allow ZKIN to easily 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.
So far, 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.
Timely to a Massive Opportunity
That makes ZKIN timely to a massive opportunity. It's noted that the seismic population shift is significantly impacting China's urban infrastructure, contributing to an estimate that about 61% of groundwater and 28% of key rivers are classified as unfit for human contact. 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. As expected, China isn't turning a blind eye to the current problem or its potentially worsening future.
And ZKIN could benefit. 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. Scoring contracts from that massive program will add to others.
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 can earn massive near and long-term revenues from those projects, they are monetizing plenty of others from state-owned water supply companies engaged in major construction and water supply projects. Remember, ZKIN operates from a position of strength in terms of industry development, noting the company has been vital in developing stainless steel pipes for direct drinking water in the country. As important, ZKIN was authorized to draft many national standards of stainless steel pipe and clamp pipe fitting. That does more than position the company for expedited growth in the Chinese markets; the accumulated production technology advantages can also ensure that the products reach the strict standards of Europe and the United States.
The excellent news is that they already do. That makes ZKIN one of the very few manufacturers today who can produce products that meet those geographic market compliance measures.
Valuation Disconnect Worth Seizing
Combining the known value drivers with those expected to accrue in 2024, ZKIN stock at current levels may present a value proposition too good to ignore. Keep in mind 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. 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 demands.
That puts ZKIN in a sweet spot of opportunity, which the company plans to maximize by continuing to innovate, maintaining superior product quality, and forming strategic partnerships. Better still, after diversifying its focus to include broader market opportunities, downside investment risk could be at its most mitigated levels ever
Summing up those parts with the new value drivers expected in 2024, the disconnect between ZKIN's intrinsic value, inherent potential, and share price may close faster than expected. Pointing to an over 139% rally in the ZKIN share price since November, the process of closing that gap may have already begun.
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