Civilian explosion integration is the core, supported by new military materials and the digital industry: the company is the leader in civil explosion integration in Jiangxi Province, and the Jiangxi Provincial State-owned Assets Administration Commission is the actual controller. The company focuses on the integrated civilian explosion business. The civil explosion business accounted for 68.68% of revenue in 2023, laying out the new military materials industry and the rail transit automation and information technology industry, creating the second growth pole.

The integration of the explosion industry is progressing steadily, and the company's location and production capacity advantages are remarkable: the civilian explosion industry has licensing barriers and regional characteristics. The Ministry of Industry and Information Technology aims to reduce the number of production enterprises to less than 50 by 2025. The company is the only civilian explosion manufacturer in Jiangxi. The industrial detonator capacity utilization rate is 100%, and the location and production capacity advantages are remarkable. Its civilian explosion products have benefited from the advancement of major infrastructure projects during the “14th Five-Year Plan” period in the long term.

The military industry has deep roots, and the new military materials business has blossomed a lot: the company was formerly a subsidiary of the Jiangxi National Defense Science and Engineering Office, and a large number of executives and technicians have rich experience in the military industry. Products such as wire clusters and AK18 developed by the holding subsidiary AOKE New Materials and downstream military OEMs have been delivered to downstream customers; the wholly-owned subsidiary Mitsuishi Nonferrous Tantalum-Niobium Project has a design capacity of 1,040 tons/year, with an estimated average annual revenue of 0.256 billion yuan and net profit of 0.03 billion yuan, which will be produced by the end of 2024; the wholly-owned subsidiary Xinyu Cathay Pacific has developed and stably mass-produced 6 types of unmanned target rocket booster products to meet the needs of different types of drones.

Construction of a new energy-containing materials production line with high expected performance growth: On May 9, 2024, the company announced that its wholly-owned subsidiary Jiujiang Cathay Pacific plans to build two new energy-containing material production lines, with a total annual production capacity of 3,000 tons to 4,300 tons, which has obtained approval from relevant national departments. Delivery of products is expected to begin in the second half of 2025, increasing the company's annual revenue by 0.75 billion yuan after delivery, which is equivalent to 29.52% of total revenue in 2023.

Investment advice: The company is the only civilian explosion manufacturer in Jiangxi Province. Starting construction of its energy-containing materials production line will enhance the output value and profitability of the company's new military materials sector. We expect the company to achieve operating income of 2.749/3.468/4.201 billion yuan in 2024-2026, and net profit to mother of 0.335/0.405/0.516 billion yuan respectively, corresponding PE 19.03/15.74/12.36 times, respectively. Covered for the first time, a “gain” rating was given.

Risk warning: Project construction falls short of expectations; price fluctuations of raw materials; risk of majority shareholders' pledge; risk of shareholder reduction; risk of impairment of goodwill.