Event: the company released its Triple report for 2023. In the first three quarters of 2023, the company achieved operating income of 1.042 billion yuan, an increase of 16.36% over the same period last year, and a net profit of 80.8134 million yuan, an increase of 72.41% over the same period last year.

Market expansion contributes to performance growth, and cost control leads to increased profitability. In the first three quarters of 2023, the company continued to strengthen market expansion, electronic detonators and key raw and auxiliary materials to achieve year-on-year increase in production and sales, leading to performance growth. In the single quarter of 2023Q3, the company achieved revenue of 389 million yuan, an increase of 15.79% over the same period last year, and a net profit of 34.2722 million yuan, an increase of 58.60% over the same period last year. The company's profitability continued to improve. In the first three quarters of 2023, the company's gross profit margin / net profit margin was 31.29% and 8.76% respectively, an increase in 5.47pct/4.05pct compared with the same period last year.

The improvement in the company's net sales profit margin is mainly due to the increase in gross profit margin, which is due to the strengthening of cost control by taking a series of measures to optimize internal management; in terms of period expense rate, in the first three quarters of 2023, due to increased sales efforts, the company's sales expense rate increased year-on-year 1.19pct, in addition, the management, research and development, financial expense rate decreased 1.38pct.

The leader of civil explosive intelligent equipment has benefited from the construction of military "black light factory". The company and Taneng Group signed the deepening Strategic Cooperation Agreement on April 19, 2023. Taneng Group is a wholly owned subsidiary of China Arms Industry Group Co., Ltd. The two sides have reached cooperation in civil explosion, intelligent equipment, oil phase materials, overseas business, capital cooperation and other fields. Among them, in terms of intelligent equipment, the two sides agreed that during the 14th five-year Plan period, Taneng Group will complete the transformation of more than 60 fire-related production lines. Priority will be given to adopting or jointly developing advanced technology, intelligent equipment and supporting information software products in the field of pyrotechnics and civil explosions, so as to promote the construction of a "black light factory" in the field of pyrotechnics and civil explosions of the Special Energy Group.

The sales promotion and production line construction of the electronic detonator market are expected to expand the market share. According to the China explosion Association, from January to September 2023, the cumulative production and sales of industrial detonators in China's production enterprises were 530 million units, a decrease of 17.5% and 18.2% respectively over the same period last year, of which the cumulative production of electronic detonators was 490 million. Based on this calculation, the output permeability of electronic detonators in industrial detonators reached 92.5% in September 23 years ago. As of August 2023, the company has a total annual licensed production capacity of 8522 million digital electronic detonators, and the company is actively promoting the technical transformation of the production line to expand the capacity of electronic detonators. The first phase of the production line transformation construction has passed the acceptance inspection and officially put into production, the second phase of the production line transformation construction has entered the stage of trial production; at the same time, the company also continues to strengthen product sales and promotion to expand market share.

Profit forecast, valuation and rating: considering the decline in the overall production and sales of the domestic industrial detonator industry in 23 years, which has a negative impact on the company's demand for civil explosive products and equipment, we downgrade the company's 23-and 24-year net profit forecast of 119 million yuan and 200 million yuan, an additional 25-year net profit forecast of 302 million yuan, and downgrade the company's rating to "overweight" rating.

Risk hints: industrial chain extension and expansion risk, raw material price fluctuation risk, electronic detonator production line production schedule delay risk, military market development is not up to the expected risk.