The company has built an “integrated two-wing” development pattern with the main business of civilian explosion integration as the core and supported by the new military materials industry and the rail transit automation and information technology industry. In 2023, the company achieved operating income of 2,541 billion yuan, an increase of 18.05% over the previous year; achieved net profit of 305 million yuan, an increase of 112% over the previous year, after deducting non-net profit of 274 million yuan, an increase of 143% over the previous year. The increase in revenue was mainly due to the increase in production and sales of industrial explosives, the complete replacement of ordinary detonators by electronic detonators, and a sharp rise in the volume and price of potassium perchlorate products of the holding subsidiary Yongning Technology. The company focuses on constructing an “integrated two-wing” development pattern with the main integrated civilian explosion business as the core and supported by the new military materials industry and rail transit automation and information technology industry. Currently, the company's industrial explosives production capacity is 174,000 tons, and the production capacity of electronic detonators is 25.1 million rounds.

Growth was driven by electronic detonators and potassium perchlorate. In 2023, the company's explosives sales revenue was 789 million yuan, up 9.6% year on year, electronic detonator revenue was 400 million yuan, up 90% year on year, blasting engineering revenue was 450 million yuan, up 3% year on year, potassium perchlorate revenue was 240 million yuan, up 100% year on year, and new military materials business revenue was 173 million yuan, down 3.99% year on year. Among them, in 2023, the company sold 123,000 tons of explosives, up 17% year on year, with an average price of 6411.87 yuan/ton, down 6.43% year on year. The sales volume of electronic detonators was 28.94 million, up 106% year on year. The average price was 14 yuan/round, down 7.81% year on year. Potassium perchlorate sold 14,800 tons, up 33.72% year on year, with an average price of 16,400 yuan/ton, up 32% year on year.

Supporting materials for military business are developing steadily. The holding subsidiary, Aoke New Materials, is a supporting supplier for military equipment. New tungsten-based damaging materials are the main products supporting its military equipment. In 2023, 3 projects achieved mass production, 1 project completion status assessment review, and 1 project successfully participated in the bidding. The holding subsidiary Tuohong New Materials seized the favorable opportunity of increased demand for smelting niobium. Production and sales reached a record high. It achieved annual revenue of 151.61 million yuan, total profit of 15.14 million yuan, and upgraded exhaust gas and wastewater treatment functions.

Mitsuishi Nonferrous, a wholly-owned subsidiary, entered the trial production stage in 2023. The “three waste” treatment facilities supporting the construction project were put into trial use, and the company's environmental management level was further improved.

Unmanned target aircraft rocket boosters were mass-produced. Using the technical advantages of civilian explosives, pyrotechnics workshops, and talents, the company has successively independently developed unmanned target aircraft rocket boosters, military microsmokers, etc. Among them, unmanned target aircraft rocket boosters have been steadily mass-produced and expanded to many customers. The wholly-owned subsidiary Xinyu Cathay Pacific has a complete range of unmanned target aircraft rocket booster products. It has developed and stably mass-produced 6 types of unmanned target aircraft rocket booster products, which can meet the needs of different types of drones.

Profit forecast. We expect the company's net profit to be 3.75, 4.18, and 469 million yuan in 2024-2026, respectively. Referring to the valuation of comparable companies in the same industry, we gave 2024 24-26 times PE, with a corresponding reasonable value range of 14.4-15.6 yuan. For the first time, coverage gave a “superior to the market” rating.

Risk warning. Safety risk; market competition risk; price fluctuation risk.