A leading enterprise in the civil explosion industry in Shanxi Province. The company is mainly engaged in R&D, production, sales, import and export of explosives and professional engineering blasting services. The main products are detonators, explosives, and detonators, which are widely used in mining, transportation construction, water conservancy and hydropower, building demolition, petroleum exploration, national defense engineering and other fields. As of June 2023, the company has a licensed production capacity of 67,000 tons of industrial explosives, 58.8 million rounds of digital electronic detonators, 20 million rounds of ordinary industrial detonators, and 2,300 tons of detonators. In August 2023, the company won 100% of Anshun Chemical's shares in an auction, adding 11,000 tons of explosives production capacity.
The detonator business accounts for a relatively high share, and explosives and blasting services continue to grow. In the first half of 2023, the company produced 4.578 million rounds of ordinary industrial detonators and 18.669 million rounds of digital electronic detonators. The total output of detonators ranked fourth in the industry. The total revenue of detonator products was 304 million yuan, accounting for 51.94% of total revenue, up 96.1% year on year; the sales volume of industrial explosives was 25,200 tons, up 8.84% year on year, and revenue was 173 million yuan, accounting for 29.64% of total revenue, up 6.51% year on year. Project blasting revenue was 62 million yuan, accounting for 10.67% of total revenue, an increase of 5.90% over the previous year.
The downstream of the civil explosion is mainly used for mining, and the Shanxi market is in high demand. According to the prospectus, about 70% of explosives for civilian use were used in the mining of coal, metal and non-metal mines. In 2019, the amount of explosives used in mining the above three types of mines accounted for 71.50% of the total amount of explosives, of which the amount used for coal mining accounted for 22.50% of the total amount of explosives, and the amount used in metal mines and non-metallic mines accounted for 24.90% and 24.10% of the total amount of explosives, respectively. According to the official account data of the China Explosive Association, by the end of 2022, the permitted production capacity of mixed explosives on site in China was 2.57 million tons, accounting for 42% of the total explosives production capacity, and the licensed capacity for producing electronic detonators in China was 1.05 billion rounds. According to the official account data of the China Explosive Association, from January to November 2023, a total of 1.4986 million tons of mixed explosives were completed on site, an increase of 11.02% over the previous year, and its production accounted for 35.86% of the total industrial explosives output. The cumulative production of electronic detonators was 607 million, an increase of 105.97% over the previous year, and its production accounted for 92.81% of the total production of industrial detonators. In 2022, the production and sales of industrial detonators and explosives in Shanxi Province ranked in the top two in the country.
The use of funds raised was changed to enable self-production of the main raw materials for electronic detonators. In December 2022, the company will raise 234 million yuan of capital and interest for the implementation of electronic detonator automated production line construction projects and electronic detonator cable, chip module, and packaging production line projects. The product quality of scaffolds and chips directly affects the quality of electronic detonator products. After the electronic detonator cable project is put into operation, the company can achieve self-production of major raw materials, which will greatly reduce production costs. It is estimated that it can achieve profit of 0.28-63 million yuan/year after tax and reduce procurement costs by 0.28-47 million yuan/year.
Profit forecast. We expect the company's 2023-2025 EPS to be 0.99, 1.19, and 1.36 yuan respectively.
Referring to the valuation of comparable companies in the same industry, PE was given 13-15 times in 2024. The corresponding reasonable value range was 15.47-17.85 yuan. The first coverage was superior to the market rating.
Risk warning. Risk of fluctuations in raw material prices; downstream demand falls short of expectations.