Company profile: focus on industrial module design and manufacturing, with EPFC industry chain links and integrated service capabilities. The company's business development can be divided into three stages, initially mainly engaged in cold box manufacturing, prefabricated pipes and other small module manufacturing business, and then the business gradually evolved into the design and manufacture of industrial modules. Industrial module design and manufacturing, engineering services for the company's two main businesses. As of the first half of 2023, the proportion of shares held by the top five shareholders of the company is 64.73%, which is more concentrated. In the first half of 2023, the company achieved operating income of 1.347 billion yuan, an increase of 127.02% over the same period last year, and a net profit of 87.3591 million yuan, an increase of 150.58% over the same period last year. Engineering services and industrial module design and manufacturing are the main sources of revenue for the company, accounting for 77.02% and 22.54% respectively in 2022.

Engineering module design and manufacturing industry: broad application prospects, permeability is expected to improve? The advantage of modular manufacturing is prominent and the application prospect is broad. The design and manufacture of industrial module includes two parts: industrial module design and industrial module manufacturing, in which the design stage needs to rely on the final process use of the product and comprehensively consider many factors to disassemble the large-scale device into a single module; the manufacturing process requires the application of multiple module manufacturing technologies. The upstream of industrial module design and manufacturing are raw materials and subcontract suppliers, while the downstream application fields are mainly chemical industry, and gradually infiltrate into oil, gas, energy, mining and other industries. Compared with the traditional construction method, the modular project construction method mainly includes the following three advantages: 1) in line with the industrial pattern of international division of labor, balance global production resources; 2) avoid bad construction environment; 3) cost and quality control, production safety, environmental protection. Taking the ethylene cracking furnace built by Petrochina Company Limited as an example, the modular type can reduce the average construction cost of a single cracking furnace by about 2.6 million yuan.

When the European industrial transfer is carried out, China's chemical industry has a bright future. Europe is highly dependent on Russian energy. More than 40% of the raw materials in the European chemical industry come from natural gas. Russia's "gas outage" will seriously impact the chemical industry and drive the transfer of the industry. China's chemical market is huge, with sales of chemical products reaching 1.73 trillion euros in 2021, an increase of 11.61 percent over the same period last year. In 2021, China's chemical sales accounted for 43% of the global share, the leading position is difficult to shake. With a huge market and a good business environment, China is expected to benefit from this round of industrial transfer.

International chemical giants have increased their investment in China, and the penetration rate in other areas is expected to increase. Demand for modular design and manufacturing has benefited from increased investment by overseas chemical giants in China in the short term and increased penetration in chemical and other areas in the long run. BASF invested 10 billion euros in the Guangdong Zhanjiang integration base project. Exxon Mobil Corp invested 10 billion US dollars to build Huizhou ethylene project.

According to our incomplete statistics, from 2019 to 2023, the total investment of international chemical enterprises in China exceeded 170 billion yuan, with an average annual investment of 35.583 billion yuan. In the long run, modular devices have a large potential market demand in oil and gas energy, water treatment, mining equipment and other industries, and the permeability is expected to be further improved.

Company analysis: the two main industries have their own advantages, orders to promote future growth? Excellent modular design and manufacturing capacity, with the advantages of EPFC whole industry chain and integrated service.

The company is one of the few domestic enterprises with large-scale industrial module design and manufacturing capacity. The industry pays more attention to project experience, the company's past achievements are remarkable, and its competitive advantage is prominent. The company has complete international and domestic qualifications, and has relevant certification qualifications in the international / domestic market. The revenue of industrial module design and manufacturing business reached 388 million yuan in 2022, down 26.89 percent from the same period last year. The gross profit margin is 20.10%, which is basically stable. The company has the whole industry chain link and integrated service capability of "Design-Purchasing-Modularization-Construction" (EPFC). In 2022, revenue from engineering services reached 1.326 billion yuan, down 8.04% from the same period last year; gross profit margin was 19.37%, an increase of 6.80pct over the same period last year. The production staff accounts for the highest proportion of the company's employees, reaching 74% in 2022. From 2018 to 2022, the per capita income and profit per capita showed an upward trend. Buyback shares are used in employee stock ownership plans or equity incentives to improve employee enthusiasm.

With high quality customer resources and abundant orders, we can expect to grow in the future. The company's main customers are well-known multinational enterprises in the industry, with good commercial credit and abundant funds. The characteristics of the industry make the company's customer concentration on the high side, and the company's customers are well-known multinational enterprises in the industry. There are plenty of orders on hand, and the newly signed major contract orders have exceeded 4 billion since 22 years, which is full of driving force for future performance growth.

The geographical advantages of each base are significant, and fully grasp the development opportunities of South China. The company has two production bases in Zhangjiagang and plans to build a production base in Zhanjiang. The company fully grasps the development opportunity of South China and plans to invest 235 million yuan to raise funds in the Zhanjiang base project.

Investment suggestion: the company focuses on industrial module design and manufacturing, has the EPFC whole industry chain link and integrated service capacity, and maintains the holding rating. It is estimated that the company's net profit from 2023 to 2025 is 2.13,2.70 and 341 million yuan respectively, an increase of 56%, 27% and 26% respectively over the same period last year, and the corresponding valuation is 20, 16 and 12 times respectively. China is the largest consumer market of chemical products in the world. Under the background of industrial transfer in Europe, China's chemical industry has broad prospects for development. In the short term, international chemical giants have been increasing their investment in China since 2019, with a total investment of more than 170 billion yuan, which will lead to the continuous growth of market demand in the industry. In the long run, in addition to the chemical industry, modular devices have a large potential demand in oil and gas energy, water treatment, mining equipment and other industries, and the market space is expected to continue to expand. The company has excellent modular design and manufacturing capacity, and has the advantages of EPFC whole industry chain and integrated service. Most of the customer resources are international well-known chemical enterprises, with abundant orders on hand, obvious geographical advantages of the base, and promising growth in the future.

Risk hints: project promotion is not as good as expected risk; modular penetration is less than expected risk; overseas chemical companies' investment in China is declining risk; high customer concentration risk; market competition aggravates risk