The world's leading explosion-proof electrical appliance company, with steady performance and high dividends. The company was founded in 1987 and has been deeply involved in the explosion-proof industry for more than 30 years. The global market share is about 8%, ranking third in the world. The business layout covers explosion-proof, professional lighting, and new energy EPCs. In 2017-2023, the company's revenue CAGR was 13.70%, and net profit CAGR was 24.12%; 2024H1's operating revenue/net profit to mother was +6.39%/+2.57%, respectively, and explosion-proof products/special lighting equipment/ engineering revenue was -3.69%/+21.65%/+3412.67%, respectively. With the gradual advancement of intelligent safety systems and EPC engineering, it is expected to maintain steady growth throughout the year. The company maintains a dividend level of 70% or more all year round, and the high dividend policy is expected to continue in the future. Currently, the dividend rate is 6.68%, which is a high level among peers.

The company's overall domestic trade revenue is stable, and the development of emerging fields is accelerating. The company's explosion-proof business is divided into domestic trade at a ratio of about 7:3. Among them, demand for stock replacement in the traditional sector of domestic trade accounts for roughly 70%. The overall revenue contribution is steady and less affected by fluctuations in the downstream cycle. Emerging fields have been booming in recent years. Food, oil and medicine (liquor), military nuclear power, safety and engineering intelligence have continued to contribute more than 30% of incremental revenue, accounting for more than 30%. The company's overall domestic trade revenue has remained steady since 2020. The company is currently focusing on intelligent safety management and control systems. In terms of time, security system revenue increased from 0.126 billion yuan to 0.21 billion yuan, achieving relatively rapid development. Currently, the company is full of orders, some safety intelligence projects are nearing completion, and back-end processes such as inspection are being promoted. It is expected to continue to contribute revenue in the second half of the year, and it is expected that it will continue to grow rapidly throughout the year. At the same time, China's policy requires strengthening the construction of safety management and control platforms in chemical parks. In terms of time, it is required to complete basic management and control platforms in the three years 2024-2026. There is still plenty of room for development in the safety and security business.

Continued expansion into overseas markets is expected to continue to contribute to growth. The company has been overseas for nearly 20 years, and has established more than 60 national agents in Spain, Turkey, South Africa and other countries and regions, forming a relatively complete international sales network. At the same time, the company's related products have reached the international advanced and domestic technical level, and have obtained many international product certifications and factory certifications such as EU ATEX, international IECEx, and Russian CU-TR. It is an explosion-proof professional enterprise with a complete range of product certifications in the same international and domestic industries. The company's foreign trade revenue increased from 0.568 billion yuan to 0.7 billion yuan in 2020-2023, and the 2024H1 foreign trade revenue was +43.82% year-on-year. It is expected to maintain a rapid growth trend throughout the year. At the same time, the company's Saudi subsidiary was established in the first half of the year, and under ideal conditions, it can contribute to performance next year.

Profit forecast: First coverage, giving the company an “gain” rating. We expect the company to achieve operating income of 3.776/4.158/4.545 billion yuan in 2024-2026 and achieve net profit of 0.516/0.575/0.638 billion yuan, corresponding PE of 10.36x/9.30x/8.37x.

Risk warning: Domestic oil and gasification capital development support continues to decline; development of emerging fields falls short of expectations; promotion of safety systems falls short of expectations; overseas market development falls short of expectations; profit forecasts and valuation models fall short of expectations, etc.