Emergency management leader, orders are growing rapidly

Chenan Technology focuses on the field of public safety and emergency management. Relying on advanced technologies such as AI models, big data, cloud computing, Internet of Things, BIM, and GIS, it provides domestic and foreign users with software, equipment and services for major safety and emergency. Its main business mainly includes urban safety, emergency management, equipment and fire protection, consumer business, and overseas public safety. As of the third quarter, the company achieved total revenue of 0.951 billion yuan, down 27.53% from last year, and net profit to mother of -149.5864 million yuan, or -1449.06% compared with last year.

Since this year, the company has been seizing relevant policy opportunities such as trillion treasury bonds, ultra-long-term special treasury bonds, “double”, “two new”, the Ministry of Housing and Construction's “Guiding Opinions on Promoting Urban Infrastructure Lifeline Safety Projects”, the Ministry of Finance and Housing and Construction's “Notice on Launching Urban Renewal Demonstration Work”, and the Ministry of Housing and Construction's “Notice on Launching Urban Renewal Demonstration Work” and special treatment of “sick operation” of gas pipelines, etc., to vigorously promote business development. In the first three quarters of 2024, the company's contract amount increased by nearly 40% year-on-year. As of the third quarter, the company's inventory (stock items) increased by 30.34% year on year, and contract assets (inspection items that comply with contract assets) increased by 91.71% year on year, providing support for subsequent performance implementation.

A package of incremental policies was released intensively. The urban safety industry ushered in expansion in October 2024. The Information Office of the State Council held continuous press conferences. The National Development and Reform Commission and the Ministry of Finance each indicated that they would launch a package of incremental policies to support key urban renewal projects and support local resolution of hidden debts through measures such as issuing ultra-long-term special treasury bonds and increasing debt amounts. According to official information from the National Development and Reform Commission, it is estimated that the total amount of urban gas, drainage, and heating networks that will need to be renovated in the next five years is nearly 0.6 million kilometers, and the total investment requirement is about 4 trillion kilometers.

Driven by “dual” and “double new” actions, urban lifeline projects and equipment upgrades in the field of municipal infrastructure have become the focus of national development. In the list of two 100 billion “double” construction projects issued in advance and investment plans within the central budget, priority is given to supporting a number of key urban renewal projects, mainly arranging the construction of urban gas, drainage, and heating pipelines. On May 31, the Ministry of Finance's website published the “2024 Urban Renewal Action Review Results Announcement”. According to public information, the first batch of 15 cities will receive support from the Ministry of Finance to implement the urban renewal action. The central government grants planned subsidies to model cities by region. Among them: the total subsidy for each city in the eastern region does not exceed 0.8 billion yuan, the total subsidy for each city in the central region does not exceed 1 billion yuan, the total subsidy for each city in the western region does not exceed 1.2 billion yuan, and the total subsidy for each city directly under the Central Government does not exceed 1.2 billion yuan.

According to official information from the Ministry of Finance, a debt limit of 1.2 trillion yuan was arranged in 2024 to support local efforts to resolve existing debt risks and clear up arrears of corporate accounts. In the future, a package of incremental policies and measures will be introduced one after another to increase the amount of debt on a larger scale and increase support for the local government debt risk.

In summary, a package of incremental policies has injected sufficient capital into the field of urban safety, leading to the expansion of the entire industry.

Trillion+ ultra-long-term treasury bond funds have been put in place one after another, and emergency management ushered in new opportunities. The third batch of trillion treasury bond funds was launched in February to support post-disaster recovery and reconstruction and enhance disaster prevention, mitigation and relief capabilities. This provided new opportunities for the company's business development in the field of emergency management. The third batch of trillions of treasury bonds was used for more than 2,800 projects: the first was 100.2 billion yuan in grants for post-disaster rehabilitation and reconstruction and enhancement of disaster prevention and mitigation capabilities, to support post-disaster recovery and reconstruction in North China, focusing on Beijing-Tianjin-Hebei, etc., as well as post-earthquake recovery and reconstruction in Gansu and Qinghai. Second, the subsidy fund for projects to improve emergency response capacity for natural disasters is 58.5 billion yuan to support the implementation of early warning and command projects, rescue capability projects, catastrophe prevention projects, and grass-roots disaster prevention projects. Third, the subsidy fund for the construction of a comprehensive prevention and control system for key natural disasters is 38.8 billion yuan to support the construction of a comprehensive geological disaster and marine disaster prevention system. The company responded positively to the demand for the trillion treasury bond project and even won the bid. In addition, the relevant policies introduced by the government will also provide strong support to the safety emergency equipment industry. It is estimated that by 2025, the scale of the safety emergency equipment industry will exceed 1 trillion yuan. According to the “China Smart Emergency Solution Market Share” report released by IDC, Chenan Technology's share of the smart emergency application market reached 22.8%, ranking among the highest in the industry.

Backed by China Telecom, work together

The company is a subsidiary of China Telecom Holdings and benefits from Telecom's strong project undertaking capabilities. For example, the company cooperated closely with China Telecom and successfully won the bid for the Xi'an Urban Safety Risk Comprehensive Monitoring and Early Warning Platform project. At the same time, Telecom's domestic and foreign government and enterprise customer resources and overseas market channels have brought more business opportunities to Chen'an Technology. This sharing of resources not only helps the company expand its market share, but also promotes its comprehensive development in the fields of public safety and emergency platform business, urban safety business, and fire safety business. On the technical side, the company actively implements China Telecom's “cloud to digital transformation” strategy to explore and promote the deep integration and collaborative development of security products, the Internet of Things, and cloud services. This technology integration helps the company fully integrate its technical products and solution advantages in the field of public safety with China Telecom's advantages in cloud network technology and market channels, and achieve collaborative growth of the two parties' businesses.

Investment advice

The company's 2024-2026 EPS is expected to be 0.40, 0.57, and 0.89 yuan, respectively, and the PE corresponding to the current stock price is 55.84, 39.02, and 24.72 times, respectively. As the country's emphasis on emergency management and urban safety continues to increase, and the investment of ultra-long+ trillion treasury bonds in the emergency field increases, the market size in the field of public safety and emergency response will continue to expand, and Chenan Technology, as a leading enterprise in the industry, will achieve even larger scale growth. First coverage, giving a “buy” rating.

Risk warning

Downstream customer demand expansion falls short of expectations; policy implementation falls short of expectations; product technology research and development falls short of expectations; market competition intensifies, etc.