Core views

Explosion-proof electrical appliances have consumable properties. In the traditional oil and gas chemical market, the company accounts for nearly 70% of the replacement demand and about 30% of the new construction demand. Emerging industries such as liquor, military, nuclear power, and national granaries are increasing, and the global explosion-proof electrical appliance market is expected to reach 8 billion US dollars by 2025. Using security intelligence as a starting point, the company continues to transform into a “production safety service provider”. The security system achieved revenue of 0.21 billion yuan in 2023; the hazardous chemical park market is expected to exceed 10 billion dollars, and the company's hazardous chemical park projects and downstream traditional hardware projects are full of orders. The company is the only supplier that exports explosion-proof electrical appliances in bulk. Overseas operation centers were set up and put into operation in Europe, Central Asia, and Southeast Asia respectively in 2023. The Saudi joint venture entered the review and registration stage, and is actively planning overseas operation centers in the Far East, Africa and South America. The company's net present ratio is higher than 100% year-round, and the average dividend rate since listing was 79%.

Brief review

In 2023, the company achieved revenue of 3.197 billion yuan, +5.06% year over year, and realized net profit of 4.6.1 billion yuan, +28.73% year over year; 2024Q1 achieved revenue of 0.644 billion yuan, +5.42% year over year, and realized net profit of 0.085 billion yuan, or -1.22% year on year. By product, the company achieved revenue of 2.602 billion yuan for explosion-proof products in 2023, with a gross margin of 57%, an increase of 0.3 pct; the engineering business achieved revenue of 0.274 billion yuan, -44% year over year, mainly due to delays in construction due to the impact of approval procedures for new energy EPC projects. The gross margin was 25.2%, up 9.9 pct year on year; professional lighting and other products achieved revenue of 0.321 billion yuan, +11% year over year, and is expected to maintain moderate growth in the future According to the trend, gross margin was 56.6%, a year-on-year decrease of 3.5 pct.

Explosion-proof electrical appliances have consumable properties. In the revenue of the traditional oil and gas chemical market, the company's stock replacement demand accounts for nearly 70%, and the demand for new construction accounts for more than 30%, so the stock oil and gas and chemical business is growing steadily. Demand for explosion-proof in emerging industries such as liquor, military, nuclear power, and national storage granaries is growing, and market space continues to expand as the field expands. According to data from the Federal Institute of Physics (PTB), the global explosion-proof electrical appliance market will exceed 5 billion US dollars in 2019, and the global explosion-proof electrical appliance market is expected to reach 8 billion US dollars by 2025, with a compound annual growth rate of 8%. The company has formed seven major business segments of intelligent control platforms for oil and gas chemicals, marine engineering ships, safety and engineering equipment, food, medicine and alcohol, military nuclear power, and pyrotechnics.

The company takes safety intelligence as a starting point and continues to transform into a “production safety service provider”. The company's safety system has gone through many iterations, and has now integrated 10 major sub-systems such as smart lighting control, smart power distribution control, online equipment monitoring, video surveillance management, smart chemical park management, hazardous chemical enterprise production safety management, personnel positioning management, integrated communication management, smart fire management, and combustible gas detection. Each subsystem operates independently and achieves mutual data sharing, scheduling and command synchronization, fully covering the various needs of users for on-site safety control. In 2023, the company's security system achieved revenue of 2.0.1 billion yuan, and there were plenty of on-hand orders for hazardous chemical park projects and traditional hardware downstream projects. The hazardous chemical park market has a certified stock of nearly 600 new chemical parks across the country. The average value of single chemical parks is around 20 million, and the hazardous chemical park market is expected to exceed 10 billion dollars.

The company actively lays out overseas markets. Investment in oil and gas projects in the Middle East, Asia Pacific, Africa and other regions is high. With the Belt and Road Initiative being promoted at an accelerated pace, domestic equipment going overseas has ushered in opportunities. According to the company's 2023 annual report, the company is the only mass export supplier in the explosion-proof electrical appliance industry. Overseas operation centers were set up and put into operation in Europe, Central Asia, and Southeast Asia respectively in 2023. The Saudi joint venture entered the review and registration stage, and is actively planning overseas operation centers in the Far East, Africa and South America in an effort to enhance global market share and core competitiveness. In 2023, the company's foreign trade department's business achieved revenue of 0.7 billion yuan, an increase of 11.5% over the previous year.

The company has good cash flow and high dividend rate. The company's sales use a unique “business developer model”, where business developers carry out market expansion, customer maintenance, and assist the company in reaching transactions. Finally, the company sells products directly to customers, and customers directly pay the purchase price to the company. As a result, the company has excellent cash flow, which is 100% higher than year-round, 134% in 2023; the company has maintained annual dividends since its listing, with an average dividend rate of 79.36%.

Profit forecast: The company's net profit for 2024-2025 is estimated to be $542 million and 648 million yuan, respectively, maintaining a “buy” rating.

Risk warning: Risk of rising raw material prices and declining capital expenditure in the domestic petroleum industry Price of raw materials price increases: The main raw materials required for the production of the company's products are aluminum products, steel products, light sources, and outsourced electrical appliances. In recent years, due to macroeconomic fluctuations, price fluctuations in commodities such as aluminum and steel have led to certain fluctuations in the market prices of some of the company's raw materials, and the company's profits may be adversely affected.

The risk of declining capital expenditure in the domestic petroleum industry: Since 2020, with the rise in crude oil prices, the profits of China's oil and gas production and sales companies have experienced a round of rapid growth and currently remain high. Capital expenditure is gradually being skewed towards projects such as new energy and overseas oil and gas exploration. Domestic oil and gas exploration and development is also increasing investment in unconventional petroleum resources such as shale gas, shale oil, and offshore oil. The scale of traditional petroleum resource development has declined, and total capital expenditure in the refining and chemical sector has shrunk. If capital expenditure in the petroleum industry declines, it will adversely affect the company's growth.