Leading electronic control module companies for blasting are seizing the rapid development of electronic detonator replacement opportunities. The products sold by the company include electronic control modules, detonation controllers, amplifiers, etc. Among them, electronic control modules are mainly used in the field of blasting, and detonation controllers are generally used in conjunction with electronic control modules. Both are key components of electronic detonator detonation systems. The company grasped the electronic detonator replacement opportunities in China, and the company's performance achieved relatively rapid growth. In 2020-2022, it achieved revenue of 211 million yuan, 356 million yuan, and 771 million yuan, respectively, with a CAGR of 117.32%; net profit to mother of 63 million yuan, 88 million yuan, and 185 million yuan, with a CAGR of 127.08%. Due to raw material costs and product restructuring, the company's gross margin fluctuated. 2020-2023H1 gross margins were 47.56%, 46.00%, 42.11%, and 45.66%, respectively.
The transformation and upgrading of the civilian explosion industry continues, and the market share is expected to increase steadily. In recent years, the country has enacted various policies to strongly support the promotion and application of electronic detonators. Driven by policies and markets, the electronic detonator market ushered in explosive growth. Since 2018, electronic detonator production has increased from 16 million in 2018 to 344 million in 2022, with an average annualized compound growth rate of 115.33%; the electronic detonator replacement rate (electronic detonator production/total industrial detonator production) has increased year by year, from 1.28% in 2018 to 42.73% in 2022. From January to June 2023, the production of electronic detonators was 303 million, an increase of 219.17% year on year; the replacement rate of electronic detonators was 91.27%, an increase of 71 percentage points over the same period last year. At the same time, due to the high requirements for safety and reliability in downstream applications, downstream customers generally prefer to choose electronic control modules that have been verified for long-term use and have high safety and reliability. Downstream customers are generally cautious about electronic control module products newly entering the market. They need to go through long-term technical and actual engineering application verification before considering replacing the product. As a result, the industry has strong customer resource barriers, and the company has a remarkable first-mover advantage. The market share of 2023H1 electronic control module products in the field of blasting reached 23.10%. It is expected that in the future, along with the customer stickiness gained earlier, it will continue to promote transformation and upgrading with upstream enterprises to increase the company's market share. At the same time, the company's current products are mainly high-quality and high-priced high-end electronic control module products, which can meet the needs of customers in special scenarios such as small-section blasting. In order to meet market competition and the multi-level needs of customers, the company continues to fully penetrate into the middle and low end fields with its accumulated technology and market advantages, further increasing the company's market share.
The “Belt and Road” people have exploded overseas, bringing new growth points to new markets and fields. The civilian explosion industry responded positively to the “Belt and Road” call during the “13th Five-Year Plan” period, actively promoted the integrated development of civilian explosion production and blasting services, and strengthened international exchanges and cooperation. At the beginning of 2021, 8 of the top 20 production enterprise groups in the bombing industry had investment plans such as factory construction or mergers and acquisitions in 14 countries in Asia, Africa, and South America, with a total investment of nearly 710 million yuan. As technology and products continued to mature, the gap between domestic electronic control modules and similar foreign products gradually narrowed in terms of product performance, and the sales price was far lower than that of similar foreign products. The electronic control module already has the conditions to go abroad and enter the international market. It has competitiveness in high-end application markets in countries and regions rich in mineral resources such as South Africa, South America and Australia, and has good room for development in overseas markets. The company is expected to follow domestic electronic detonator manufacturers to expand overseas markets, bringing new growth points to the company's performance. At the same time, the company's existing products have certain technical commonalities with geological exploration, oil extraction, emergency management and disposal, and new energy vehicle safety systems, etc., and have made good progress. The company's business expansion in new fields has good technical commonality with the company's main business, which helps the company to utilize the R&D and technical strength of the existing technology platform and further expand the market growth space.
Profit forecasting
The company has a stable leading position in the blasting electronic control module market and has become a leading enterprise in the blasting electronic control module market. It has significant advantages in terms of technology, customer resources, and industrial chain resources. We estimate that in 2023-25, the company will achieve revenue of 889 million yuan, 10.69 billion yuan, and 1,332 million yuan in net profit to mother of 2.13, 2.65, and 333 million yuan, respectively. Lixinwei, Youfang Technology, Lihewei, and Neusoft Carrier were selected as comparable companies in the electronic control module business in the same industry. As of January 19, 2024, after excluding outliers, the average PE was 44.05x, and the predicted PE in 2023 and 2024 were consistent expectations of 32.08 and 24.47x, respectively.