As an established state-owned enterprise under arms, Zhongbing Hongjian strives to become a benchmark enterprise for civil-military integration
As a controlled listed company of Yuxi Industrial Group Co., Ltd., a subsidiary of China Ordnance Industry Group Co., Ltd., the company continues to focus on the primary responsibility of a strong military, strengthen scientific and technological leadership, deepen civil-military integration, promote high-quality development, and is committed to building a first-class modern integrated military and civilian ammunition enterprise in China. In 2023, in the face of a complex and serious situation, in order to meet the primary responsibility of a strong army and the requirements of high-quality development, the company took a number of measures. The special equipment business sector, the superhard materials business segment, the special vehicle and auto parts business sector achieved healthy development, the core competitiveness was continuously stabilized and strengthened, the operating capacity and risk resistance were steadily enhanced, the product structure was continuously optimized and upgraded, and quality and safety continued to be consolidated. Through advanced planning and equipment production, timely response to equipment needs, orderly organization, 100% contract fulfillment rate throughout the year, and successfully completed Equipment for missions.
As the world's number one manufacturer of superhard materials, Zhongnan Diamond continues to strengthen capacity building. China continues to dominate the global superhard materials industry, and Zhongnan Diamond has maintained the world's largest market share for many years. Looking at the product supply chain, as the popularity of the cultivated diamond market declined, some superhard material companies switched back to industrial diamond production, and demand for superimposed industrial diamonds declined, making competition in the industrial diamond market more intense. Zhongnan Diamond is a leading enterprise in the superhard materials industry. It has strong technical strength, strong scientific and technological innovation capabilities and integrated innovation capabilities. It has advanced and complete core independent intellectual property rights from raw materials, parts production and assembly, product synthesis, purification, sorting to product testing and equipment manufacturing. Zhongnan Diamond has technical advantages in scientific research and production of large-grain diamond single crystals. The technology for cultivating diamond single crystals above 30 carats by high temperature and high pressure continues to maintain the leading level of the industry, and the market prospects are broad.
As an assembly platform, North Hongyang will deeply benefit from the continuous optimization and upgrading of the special equipment sector structure of the low-cost accurate guidance equipment release company, led by key projects, with key core technology research as the main line, and continuous strengthening of core competitiveness. In 2023, Beifang Hongyang's revenue increased 242% year on year, turning a loss into a profit. Net profit increased by 480 million yuan over the previous period, mainly due to the company's significant increase in product orders over the same period last year, and the price review results obtained by signing a provisional pricing contract in the early stages to deliver products. Beifang Hongyang adjusted revenue and costs for the reporting period due to differences in provisional pricing and review pricing. Looking forward to the future, as the only ammunition assembly marketing platform under the weapons industry, the company has research, design and production conditions for various products, has R&D and mass production capabilities for many key models of products in the country, can meet the production requirements of different products, and is at the advanced level in China. It will fully benefit from the upward trend driven by the rapid development of technologies related to efficient ammunition and arrow damage, remote strike, and accurate guidance.
Profit forecasting and valuation
The first coverage gives a “buy” rating. The company is the core civil-military fusion bullet leader in the weapons industry. The subsidiary Zhongnan Diamond has maintained the world's largest market share in superhard materials for many years. It has technical advantages throughout the process of superhard material products. Continued iteration and continuous cost optimization with large-carat diamond cultivation technology, market space is expected to further open up; the subsidiary Beifang Hongyang acts as a domestic scarce ammunition assembly platform, and the industry boom is booming driven by the development of technologies related to efficient damage, remote strike, and accurate guidance of core projectiles.
Our analysis predicts that the company's net profit for 24/25/26 is expected to be 88/11.3/1.53 billion yuan, with year-on-year growth rates of 6%/30%/35% respectively, corresponding PE being 21/17/12 times, respectively. With the continuous optimization of the company's internal governance structure and the gradual recovery of the superhard materials and special equipment boom, the certainty of the company's steady growth will further increase.
Risk warning
1. The risk of reducing the company's share and weakening profitability due to the deterioration of the competitive landscape in the field of cultivating diamonds; 2. Uncertainty about the pace and scale of demand issuance due to delays in overall equipment construction plans in the defense sector; 3. The risk that profit forecasting assumptions are not true or fall short of expectations.