The dual-core development of the “civilian explosion+non-civilian explosion” industry. Cathay Pacific Group's integrated civilian explosion business is the core. After listing in 2016, the company added two major segments of new military materials+rail transit automation and informatization. The integrated two-wing business pattern opens up space for future development. The controlling shareholder of the company is Jiangxi Military Holding Group. The company's revenue in 2022 was 2.152 billion yuan, of which the integrated civilian explosion business accounted for 67.72%; the share of the military new materials business increased rapidly, reaching 8.37%. Net profit to mother fell 40.13% year on year in 2022 due to goodwill impairment preparations for the subsidiary TaiGe Era to calculate 120 million yuan. Adverse factors were eliminated, and the company's net profit for the first three quarters of 2023 was 226 million yuan, up 12.41% year on year, and the company's performance is expected to return to the upward trend.

Civilian explosion sector: The only civilian explosion production group in Jiangxi Province, which is expected to benefit from the needs of surrounding infrastructure projects such as the Zhejiang, Jiangxi, Guangdong Canal, etc. The company is the only civilian explosion manufacturer in Jiangxi Province. The channel covers Jiangxi Province and eastern Guangdong, and is expected to fully benefit from the implementation of infrastructure projects such as the Ruimei Railway, Changjiang Railway, and the Zhejiang-Jiangxi Guangdong Canal in Jiangxi Province during the “14th Five-Year Plan” period. Among them, the Zhejiang-Jiangxi Guangdong Canal is expected to invest 320 billion yuan overall, and Jiangxi Province accounts for 60% of the river section. As of 23H1, the company's industrial explosives production capacity was 174,000 tons, and industrial detonator production capacity was 49.8 million rounds. In the first three quarters of '23, the company's sales of industrial explosives and electronic detonators increased 13.38% and 195.65% year-on-year.

New military materials sector: military lineage, multi-point parallel progress. The company's military business is carried out by several holding subsidiaries.

Among them, Aoke New Materials has a complete production line for tungsten alloy materials and new non-metallic fiber materials, and is the only domestic supplier of non-metallic LH wire groups; Mitsuishi Nonferrous and Tuohong New Materials are engaged in tantalum-niobium hydrometallurgy processing, and the annual production capacity of tantalum-niobium oxide and potassium fluorotantalate is expected to reach 1,500 tons; Xinyu Cathay Pacific has independently developed drone rocket boosters, which have been mass-produced and mass-supplied in batches for 23 years; Shenzhou Zhihui's core product MaxSim is a simulation platform system with completely autonomous and controllable intellectual property rights. In detachments, armed police, and military industrial groups Widely used, its cumulative on-hand orders as of 23H1 exceeded 180 million yuan.

Yongning Technology: Potassium perchlorate leader, product volume and price have risen sharply. Yongning Technology, a holding subsidiary of the company, is a leader in the domestic potassium perchlorate field, and its business has seen a sharp rise in volume and price over the past 23 years. On the one hand, the price of potassium perchlorate has risen sharply, benefiting from the “ban and restriction” trend of fireworks and firecrackers and the stricter impact of environmental protection policies; on the other hand, the company has stepped up product development and marketing efforts, successfully developed coarse particles and spherical potassium perchlorate, and achieved revenue from downstream global multinational manufacturing enterprises and military research institutes. It is expected that new high-end products will gradually expand in the future.

Profit forecast, valuation and rating: The company's net profit for 23-25 is estimated to be 313/3.87/467 million yuan, corresponding EPS of 0.50/0.62/0.75 yuan, and corresponding PE of 21x/17x/14x. Cathay Pacific Group is the only civilian explosion manufacturer in Jiangxi. It is expected to benefit from the implementation of infrastructure projects in and around the province during the “14th Five-Year Plan” period. At the same time, new military materials will benefit from increased downstream demand, while the potassium perchlorate business will benefit from the release of high-end products, stricter environmental protection, and “ban restrictions” on fireworks and firecrackers. There is room for improvement in the company's valuation, and for the first time, it was covered with a “buy” rating.

Risk warning: risk of fluctuating raw material prices, risk of market competition, risk of production safety, risk of high goodwill balance due to acquisitions.