Leading industrial module manufacturer in China, with steady growth in performance: Since its establishment in 2006, the company's business development has gone through a start-up period, a period of growth, and a stage of rapid development. It has evolved from a small module manufacturer such as cold box manufacturing and prefabricated pipelines to a leading enterprise with “design-procurement-modularization-construction” (EPFC) industry chain links and integrated service capabilities. The company's main business is engineering services and industrial module design and manufacturing. The revenue CAGR for 2017-2021 was 13.4%, the 2022 pandemic affected the pace of construction, and the annual revenue fell 13.2% year-on-year; in the first half of 2023, the execution and settlement of projects undertaken by the company was good, achieving revenue of 1.35 billion yuan, +127.0%, and net profit of 8.736 million yuan, or +150.6%.

The global chemical industry has accelerated the transfer of production capacity, and the advantages of modular construction are obvious: (1) Modular production can disassemble large-scale devices. Compared with traditional construction models, it has outstanding advantages in cost, quality control, production safety, etc., and is conducive to subsequent production line upgrades, maintenance and recycling; (2) Global chemical sales have increased, and chemical capital expenditure continues to grow. The Russia-Ukraine conflict has caused many chemical giants to increase project investment in China. BASF, Covestro, PPG and other leading chemical enterprises will be put into operation one after another in China, which will drive capital expenditure in the Chinese chemical market to rise; 3 (3) ) Labor costs in the manufacturing industry continue to rise, modular construction further improves workers' work efficiency, shortens construction periods, and reduces labor costs, and the penetration rate will continue to increase; (4) Industrial module design and manufacturing place more emphasis on past performance and qualifications, and entry barriers are high; European and American enterprises have strong technical strength, but with the development of the Belt and Road Initiative, a small number of domestic enterprises that can design and manufacture industrial modules for large-scale devices have emerged.

The company focuses on the industrial module field, and the industrial chain continues to expand: (1) The company has the necessary qualifications to carry out related business internationally and domestically. As of April 2023, it has 25 invention patents and 71 utility model patents. As of the end of 2022, it has 452 technicians. The number of patents, number and share of technicians are increasing year by year; (2) the company is deeply involved in core customers such as BASF, and has established long-term and stable cooperative relationships with dozens of companies such as Linde Gas, Honeywell, and Covestro, and the top five customers account for more than 45% of revenue for many years; 2022-2023Q1 announced 7 major project contracts, with a total contract amount of over 4.1 billion dollars, becoming a ballast stone for the next 3 years of performance; (3) The company's Zhangjiagang Heavy Equipment Park base is close to the port, which can greatly reduce module shipping costs before export; the Zhanjiang base is located in the Zhanjiang Economic Development Zone, and the entire region has multiple industrial projects invested by the world's top 500 enterprises, including BASF, liquefied air, and Dow Chemical. The company can respond quickly to customer construction needs; (4) The process modules produced by the company have been manufactured by chemicals The industry has extended to various industries such as oil and gas energy, mining, and water treatment, and is expected to fully benefit from the increase in the modularization penetration rate of various industries.

Profit prediction and investment rating: We selected Zhuoran Co., Ltd., Donghua Technology, Sanlian Hongpu, and China Industrial International as comparable companies. The company's PE (TTM) is below the average of comparable companies. The company is one of the few domestic enterprises with large-scale industrial module design and construction capabilities. Most of its customers are well-known multinational chemical companies. The volume of major orders in hand will support the performance over the next 3 years, and it is expected that it will continue to benefit from the deep ties with BASF's Zhanjiang project. We predict that the company's net profit for 2023-2025 will be 1.8/26/350 million yuan, respectively, and that the price-earnings ratio corresponding to the closing price as of September 11 will be 23.1/16.5/12.2 times, respectively. For the first time, coverage was given a “increase in holdings” rating.

Risk warning: Ongoing orders fell short of expectations; overseas chemical leaders investing in China fell short of expectations; the increase in the penetration rate of modular production methods fell short of expectations.