Key points of investment
A leader in civilian explosion technology, seizes the golden period for electronic detonators to completely replace them. In November 2021, the Ministry of Industry and Information Technology issued the “14th Five-Year Plan” for the Civil Explosives Industry. In addition to reserving a small amount of production capacity for export or other approved special uses, production must be stopped before the end of June 2022 and sales of industrial detonators other than industrial digital electronic detonators by the end of August. The penetration rate of electronic detonators increased rapidly. The penetration rate of electronic detonators in 2020/2021/2022 was 12.24%, 18.43%, and 42.73%, respectively. As of 2023, electronic detonators have basically been completely replaced. The electronic control module is the core component of electronic detonators. The company grasped the golden period of complete replacement of electronic detonators. Revenue grew rapidly in 2019-2022, achieving revenue of 0.75/2.11/33/771 million yuan respectively.
Expand your share in the blasting field and actively explore new application scenarios. The special electronic control module for blasting is the core component of the electronic detonator and can be used to achieve accurate detonation. In 2021, 2022 and the first half of 2023, the company's electronic control modules had a market share of 39.02%, 40.41% and 23.10% in the blasting field, respectively, leading the industry. Looking forward to the future, on the one hand, the company continues to develop a more market-competitive electronic control module and detonator product line based on long-term accumulation in the explosion industry to continuously expand its market share and consolidate the company's leading position in the blasting electronic control module market; on the other hand, actively explore core technologies in communication control modules and related control network systems, and expand the use of pyrotechnic circuit safety protection devices, seismic exploration electronic detonator detonator detonator network safety technology improvements and supporting facilities, etc.
The explosion industry is advancing at an accelerated pace, bringing new growth. The explosion industry actively responded to the “Belt and Road” call during the “13th Five-Year Plan” period and adopted joint bidding and joint development methods with mining companies, engineering and construction enterprises, etc., to vigorously explore the international market. At the same time, it actively invested in the construction of production facilities abroad and provided integrated services for blasting operations. At the beginning of 2021, 8 of the top 20 production enterprise groups in the bombing industry had investment plans such as building factories or mergers and acquisitions in 14 countries in Asia, Africa, and South America, with a total investment of nearly 710 million yuan. In terms of product performance, the gap between domestic electronic control modules and similar foreign products has gradually narrowed, and the sales price is far lower than that of similar foreign products, making them competitive in the middle and high-end application markets.
Develop precision analog chip products to meet the needs of downstream customers. The company is actively expanding the analog chip product category, gradually expanding the product sequence in the field of precision data converters and precision power management chips based on the product series built on the amplifier segmentation circuit to meet the needs of customers in different application fields and enhance the company's competitiveness in the field of analog chips.
Investment advice:
We expect the company's net profit from 2023-2025 to be 2.1/2.5/30 billion yuan, covered for the first time, and given a “buy” rating.
Risk warning:
Technology iteration risks; new product development falls short of expectations; industry competition increases risks; product promotion falls short of expectations; market demand recovery falls short of expectations.