The company's civilian production capacity is in the top three in the country, benefiting from the rising boom in the industry. The price center of major mineral resources has moved upward, investment in fixed assets in the mining industry continues to rise, downstream demand for the mining industry is improving, and industry sentiment continues to rise. In 2023, China's civilian explosion production enterprises achieved a total gross domestic product of 43.658 billion yuan, an increase of 10.93% over the previous year; the total profit achieved was 8.527 billion yuan, an increase of 44.99% over the previous year. As the largest domestic mining service business and the leading enterprise in the industry with the top three industrial explosives production capacity, Guangdong Hongda is fully enjoying the development dividends brought by the booming boom in the civilian explosion industry.
Under strong policy restrictions, the concentration of the explosion industry continues to increase, and the company is expected to further consolidate its leading position in the industry. The “14th Five-Year Plan for the Civilian Bomb Industry” states that by 2025, the 10 civilian explosion enterprises will account for more than 60% of the gross domestic product of the industry, with the goal of forming 3-5 large-scale integrated civilian explosion enterprises. In the context of almost no change in the licensed production capacity of industrial explosives, the industry continues to carry out mergers, acquisitions and restructuring. Guangdong Hongda Company continues to integrate civilian explosion assets across the country, has extensive acquisition experience, and continues to expand its industrial explosives production capacity. In the future, it is expected that it will continue to increase its market share in the context of continuous industry integration.
The company is the largest service provider in the domestic mining service business, with over 30 billion on-hand orders. The company is one of the most comprehensive mine explosion service providers with the most complete mining engineering service projects in China. In 2023, the mining service business revenue reached 8.935 billion yuan, ranking first in the country. The company's on-site mixed explosives production capacity accounts for 54.66%. Relying on leading “integrated mixed blasting services” and rich service experience and good reputation, the company's growth rate of new orders in recent years is far higher than the industry average. Currently, the company has more than 30 billion yuan of orders in hand, providing a guarantee for mining service performance in the next three years and helping the company grow steadily in the medium to long term. Currently, the company's mining service business mainly serves metal mines, followed by coal mines and gravel aggregate mines.
The company's mining services sector adheres to the “big project, big customer” strategy and is expected to benefit from the increase in mining service orders brought about by the expansion of capital expenditure of mining companies. The company strengthened major customers and major project management. The five major customers accounted for 42.53% of revenue before 2023. The company has formed long-term and stable cooperative relationships with leading mining companies such as Zijin Mining, Angang Steel Group, and Shenhua Group, and has followed domestic mining companies to go overseas. On the one hand, cooperation with major mining companies has provided the company with a stable source of revenue and profit. On the one hand, the company is also expected to enjoy the rapid increase in the number and amount of mining service orders brought about by a new round of capital expenditure expansion in mining enterprises in recent years.
Profit forecast and valuation: We expect the company's net profit to be 8.43/9.51/10.50 billion yuan in 2024-2026, 1.11/1.25/1.38 yuan for diluted EPS, and 19.3/17.1/15.5x for the current stock price, which is covered for the first time and gives a “buy” rating.
Risk warning: Downstream mining industry demand falls short of expectations; industrial policy risks; raw material price fluctuation risks; production safety risks, etc.