Main points of investment:
Jiangxi civilian explosion leader, to create a civil explosion integrated business model. The company is engaged in the research and development, production and sales of civil explosive equipment, and is the largest manufacturer of civil explosive equipment in Jiangxi Province. At the same time, the company actively complies with the national industry policy guidance, and strives to create an integrated business model of civil explosive equipment research and development, production, sales and blasting operations. The company's industrial explosive production license is 72000 tons, accounting for about 60% of the province's commercial explosive production license, 100 million industrial detonator production license, accounting for 100% of the province's production license, plastic detonator production license of 300 million meters, industrial detonation cord production license of 6 million meters, industrial cable products account for 100% of the province's production license.
Coal and iron ore production is expected to increase, supply-side moderate increase, civil explosion industry is expected to usher in a recovery. Due to the sharp rebound in coal and iron ore prices in the second half of 2016, the increase in coal and iron ore production this year is expected to boost demand in the civil explosion industry. 2017Q1 produced 298 million tons of iron ore nationwide, an increase of 15.9 percent over the same period last year. The China Coal Transportation and Marketing Association expects China's coal production to rebound by 5% in 2017. At the same time, with the macroeconomic recovery, "Belt and Road Initiative" policy to stimulate infrastructure investment, coupled with the civil explosion industry to implement a strict license examination and approval system and stop new production capacity, the civil explosion industry is expected to usher in a recovery. In addition, after the opening of cross-regional operation of civil explosive enterprises, the competition pattern of the industry has gradually improved. In 2012, the GDP of the top 20 production enterprises accounted for about 43%. In 2016, the proportion increased to 61%, and the industry concentration has increased significantly. The price of civil explosive equipment is also expected to continue to pick up in the future.
With the sustained and rapid economic development of Jiangxi Province, the company has a significant location advantage as the leader of civil explosion in the province. In recent years, the growth rate of GDP in Jiangxi Province has been maintained at 9% 10%, significantly higher than the national GDP growth rate. The growth rate of fixed investment in Jiangxi Province has also maintained rapid growth, with a growth rate of 14.0% in 2016, much higher than the national average of 8.1%. In addition, Jiangxi Province, where the company is located, is a large province of mineral resources, and the reserves of many kinds of metals are in the forefront of the country. The distribution of the company and its subsidiaries can fully cover Jiangxi province and the surrounding provinces and cities. At the same time, in recent years, with the implementation of the national strategy of promoting the rise of the central region and the large-scale development of the western region, the demand in the western region is growing vigorously, the demand gap for civil explosive materials is large, and the company has geographical advantages in neighboring provinces. It can quickly replenish and meet the demand gap. With its brand advantages and excellent marketing ability, the company has radiated sales to Guangdong, Guizhou, Hainan, Fujian, Jiangsu, Shandong and other provinces. Established a good non-provincial sales network and customer base.
Profit forecast and valuation. As the leading enterprise of civil explosion in Jiangxi Province, the company has a full range of civil explosion products, horizontal and vertical development of the industrial chain, obvious location advantages, benefiting from the rapid economic development of Jiangxi Province, and remarkable multiple competitive advantages. for the first time, it has been given the rating of "increase". It is estimated that the return net profit in 2017-19 is 1.00,1.23 and 140 million yuan respectively, and the EPS is 0.45,0.56,0.63 yuan respectively. The current stock price corresponds to 37X, 29X and 26X in 17-19 PE.
Risk factors: demand for infrastructure and mines is lower than expected; raw material prices fluctuate; new project development is not as expected; production safety risk.