Incident: On May 8, the company announced that it plans to increase the capital of Jiujiang Cathay Pacific (a wholly-owned subsidiary of Weiyuan Minbang) through its wholly-owned subsidiary Weiyuan Minbang with its own capital of 340 million yuan to build a new energy-containing material production line project with an annual output of 3,000 tons to 4,300 tons (multi-variety flexible).

It is proposed to increase the capital of the wholly-owned Sun Company by 340 million yuan to build a new energy-containing material production line with an annual output of 3,000 tons to 4,300 tons.

The construction site of the energy-containing new material production line project is Jiujiang City, Jiangxi Province. It is proposed to build two new energy-containing material production lines, with a total annual production capacity of 3,000 tons to 4,300 tons (multi-variety flexibility); supporting the construction of buildings such as raw material storage, production workshops, physico-chemical analysis, wastewater treatment, power centers, etc., as well as intelligent intelligent manufacturing equipment systems supporting the project. The investment scale of the project is about 1,238 billion yuan. The capital is mainly self-raised, and the shortfall will be solved by bank credit loans or the introduction of strategic investors to increase capital. After the capital increase is completed, the registered capital of the company's wholly-owned subsidiary Jiujiang Cathay Pacific will increase from 10 million yuan to 350 million yuan.

The only civilian explosion production group in Jiangxi Province has benefited from the needs of surrounding infrastructure projects such as the Zhejiang, Jiangxi, Guangdong Canal, etc. The company has an integrated explosion industry chain. As of 2023, the company's industrial explosives production capacity was 174,000 tons and electronic detonator production capacity was 25.1 million rounds. Furthermore, on May 6, the company announced that it had received a reply from the Jiangxi Department of Industry and Information Technology, agreeing to adjust the electronic detonator production license capacity to 27.27 million rounds; the company has extended from traditional civilian explosion equipment production to electronic detonator chip module processing, fire equipment, and projectile fasteners. The company is the only civilian explosion manufacturer in Jiangxi Province. The channel covers Jiangxi Province and eastern Guangdong, and is expected to fully benefit from the implementation of infrastructure projects such as the Ruimei Railway, Changjiang Railway, and the Zhejiang-Jiangxi Guangdong Canal in Jiangxi Province during the “14th Five-Year Plan” period.

There have been many breakthroughs in the new military materials business, and the volume and price of the potassium perchlorate business have risen sharply. In terms of new military materials, the company has laid out various product fields such as tungsten alloy materials, non-metallic LH filaments, tantalum-niobium smelting, drone rocket boosters, and simulation platform systems, which are expected to benefit from increased downstream demand. In terms of the potassium perchlorate business, Yongning Technology, the holding subsidiary of the company, is a leader in the domestic potassium perchlorate field, benefiting from the “ban and restriction” trend of fireworks and the rise in potassium perchlorate prices brought about by strict environmental protection policies. At the same time, new products developed by the company suitable for the military industry and automobile airbags have achieved stable mass production, so the volume and price of the company's products have risen sharply. 2024Q1, the price of the company's potassium perchlorate products increased by 21.42% year on year to 151,000 yuan/ton, sales increased 41.59% year on year to 4645.23 tons, and revenue increased 71.92% year on year to 703.87 million yuan.

Profit forecasting, valuation and ratings: Cathay Pacific Group is the only civilian explosion manufacturer in Jiangxi. New military materials benefit from increased downstream demand, while the potassium perchlorate business benefits from the release of high-end products, stricter environmental protection, and “ban restrictions” on fireworks and firecrackers. Maintain the 24-26 net profit forecast of 3.87, 4.67, and 520 million yuan, corresponding EPS of 0.62/0.75/0.84 yuan, and corresponding PE of 21x/17x/16x, maintaining the “buy” rating.

Risk warning: risk of fluctuations in raw material prices, risk of market competition, risk of high goodwill balance due to acquisitions, risk of project construction progress falling short of expectations.