Key points of investment

The invisible champion of mining belt transportation equipment. Increased share, overseas expansion, and product upgrades are expected to accelerate performance. The company is a supplier of material conveying system solutions in China. Its main products are various belt conveyors, which are mainly used in mining and other fields. The company thoroughly developed customers of the world's top 40 mining companies, had in-depth contacts with Vale, Qingshan Industrial, Delong Steel, Indonesia's Cotai Group, etc., and successfully won the bid for the world's largest iron ore project, the Simandou Iron Mine (jointly developed by Rio Tinto and Weli International Group and Baowu Group), with a bid amount of 1,279 million yuan.

The company is a private enterprise, and the actual controller's family holds 53% of the shares. Revenue and performance grew at an accelerated pace in the first three quarters of 2023. The company's 2022 gross margin was 25%, net margin was 9%, and ROE (diluted) was 5%.

Large industries and small companies will continue to increase their market share

(1) We estimate that the domestic belt conveyor market is expected to grow to 32.2 billion yuan in 2027, and the compound growth rate of the industry will be 3% in 2024-2027. (2) The concentration of the industry is scattered, and the average domestic market share of the company in 2018-2020 was 2.5%. (3) Financial strength and technical level are important competitive factors. The company's belt conveyors are in an advantageous position in China, and future industry concentration and the company's market share are expected to increase.

Overseas orders are expected to explode under the “Belt and Road” initiative

The company accounts for 10% and 20% of overseas revenue in 2022 and is expected to account for more than 60% of overseas revenue in 2024. At the same time, the company has sufficient orders in hand, with overseas orders accounting for more than 70%. Overseas business is expected to grow rapidly in the future. (1) The export market for belt conveyors reached 6.6 billion yuan in 2022, with a compound growth rate of 15% in 2017-2022. (2) The company's revenue from the “Belt and Road” export business in 2018-2020 accounted for an average share of 4.9% of China's belt conveyor export market issued by the customs. (3) The company responds positively to the “Belt and Road” national strategy and accelerates the pace of developing overseas markets.

Transportation machinery is intelligent, and the volume and price of product upgrades have risen sharply

(1) Downstream industrial enterprises are undergoing intelligent transformation, and transportation machinery will gradually be upgraded in the direction of intelligence and digitalization. According to the relevant data of “China Heavy Machinery Communications”, it is estimated that the penetration rate of China's digital twin intelligent conveyor market will be 3% in 2023 and will reach 40% in 2027. (2) In 2023, the company issued convertible bonds to raise 730 million yuan, of which 530 million yuan was used to implement a digital twin intelligent conveyor production project (total investment amount is 60 billion yuan) to improve the company's product intelligence and production intelligence.

Profit forecasting and valuation

We predict that the company's net profit for 2023-2025 will be 1.0, 160 million yuan, and 250 million yuan, respectively, up 20%, 57%, and 54% year-on-year, with a compound growth rate of 43%. The corresponding PE is 28, 18, and 12 times, respectively. Covered for the first time, a “gain” rating was given.

Risk warning

Domestic market share growth is less rapid than expected risk, overseas market development is not as fast as expected risk, and downstream customer demand for intelligent transportation machinery falls short of expected risk.