Report summary:

[BL is an EZ domestic MM leader] A supplier of high-end coal machine equipment. The company was founded in 2003 and successfully listed on the Shanghai Stock Exchange in 2015. The company's sales of sheavers, tunneling machines, emulsion pumping stations, and spray pumping stations have been among the highest in the country for many years. At the beginning of the company's establishment, the company's products were mainly shearers. In 2006, the company began developing cantilevered tunneling machines and successfully produced the first tunneling machine in 2007. Since then, the company has continued to launch innovative products for sheavers and tunneling machines, and has broadened the company's product matrix through endogenous extension. The company currently focuses on the main coal machine business. In 2022, the company's net profit to mother reached 404 million yuan, an increase of 31.19% over the previous year, reaching an all-time high. The company's net profit for the first three quarters of 2023 was 249 million yuan, up 0.74% year over year, and remained steady.

Demand for coal continues to rise, and fixed asset investment in the industry is at its peak. China's demand for coal has risen markedly, and raw coal production increased from 3.90 billion tons in 2020 to 4.71 billion tons in 2023.

Since 2017, China's coal industry has entered a fixed asset renewal period. Apart from a slight decline due to the COVID-19 pandemic in 2020, fixed asset investment in the coal mining and processing industry continued to grow, reaching a record high of 559.2 billion yuan in 2023. Coal machine equipment is an important investment of capital. According to the “Research Report on the Development of China's Coal Machinery Industry (2023)”, the sales revenue of coal machine companies nationwide reached 135.04 billion yuan in 2022, an increase of 20.3% over the previous year.

Intelligent coal mines are progressing steadily, and the coal machine renewal cycle is expected to accelerate. Intelligent coal mines are the only way for high-quality development of the coal industry. According to data from the China Coal Industry Association, the number of intelligent mining surfaces in China increased from 47 in 2017 to 1,019 in 2022. Huawei set up a coal mining army, and after entering the intelligent coal mine industry, the industry ecosystem is expected to be further built. We believe that with the deepening of coal mine intelligence, the renewal and iteration cycle of coal mills is expected to accelerate, and at the same time, the value of stand-alone machines is expected to increase further, so that the prosperity of the industry can continue.

The company is actively developing in the direction of intelligence, integration and internationalization. Currently, the coal machine industry is rapidly upgrading towards high technical content, high level of intelligence, and complete equipment, and overseas markets are also gradually receiving attention from the industry. The company continues to launch new intelligent products, and actively cooperates with companies such as Huawei to connect to the Kuanghong ecosystem and promote the application of the company's intelligent products. The company continues to enhance the production capacity of its own complete equipment. In 2021, the first complete equipment for comprehensive mining of thin coal seam working surfaces successfully passed ground testing. Since 2023, the company's products have been exported to Russia and Indonesia, and the export business is expected to gradually contribute to the increase in performance.

Profit forecast: We expect the company's net profit to be 413, 4.66, and 521 million yuan respectively in 2023-2025, corresponding to PE values of 9, 8, and 7 times. Covered for the first time, a “gain” rating was given.

Risk warning: Major changes in the energy supply structure; progress in intelligent coal mines falls short of expectations; profit forecasting and valuation models fail