The company focuses on the integration of civilian explosives, with new military materials and rail transit automation and information technology industries as its two wings.

Among them, ① in the integrated civilian explosives sector, the company's main business is civilian blasting equipment such as industrial explosives, industrial detonators and industrial cables, and integrated blasting services. Through measures such as replacing electronic detonators and expanding integrated blasting services, the company's civilian explosion industry is currently developing steadily; ② In the military new materials sector, the company's main products include new military tungsten-based damaging materials developed by the subsidiary Aoke New Materials, Tantalum Oxide, etc. Currently, the new military materials sector is developing rapidly. The block business signed a new contract amount of nearly 0.1 2024H1 Billions of yuan, including 40.96 million yuan for new tungsten-based materials and wire mass products, 26 million yuan for small solid rocket propeller products, and 32.38 million yuan for military simulation platforms; ③ The rail transit automation sector is mainly operated by the holding subsidiary Taige Era. The product system covers three stages of rail transit construction, operation, and maintenance. Currently, the products cover 18 railway bureaus and rail transit in nearly 30 cities across the country, and have a strong competitive advantage in the market segment. In 2023, the company's civilian explosion, rail transit sector and new military materials achieved revenue of 17.45, 2.43 and 0.173 billion yuan respectively, accounting for 68.68%, 9.57% and 6.81% of revenue, respectively, and 68.45%, 10.53% and 3.67% of gross profit, respectively.

Leading enterprises in Jiangxi Province have benefited from infrastructure projects such as the Zhejiang-Jiangxi Guangdong Canal. The company is the only listed civil explosives company in Jiangxi Province. As of the end of June 2024, the company's industrial explosives production capacity was 0.174 million tons, accounting for 30% of the permitted on-site mixing capacity, 30.27 million units of industrial detonator production capacity, and a stable regional leading position. The downstream of the explosives industry is mainly in the fields of coal, mineral extraction and infrastructure. Jiangxi Province is rich in mineral resources, with copper reserves of 6.6822 million tons in 2022, second only to Tibet, with tungsten reserves of 1.6936 million tons, ranking first in the country. In addition, during the “14th Five-Year Plan” period, Jiangxi Province also made plans for major infrastructure projects. Early research projects related to the Zhejiang, Jiangxi and Guangdong Canal passed the review in October 2023, and it is expected that they will be officially implemented later. The total length of the Zhejiang, Jiangxi and Guangdong Canal is about 1988 kilometers, and the total investment of the project is estimated to reach 320 billion yuan. Jiangxi Province accounts for 60% of the section of the Zhejiang-Jiangxi Guangdong Canal. Based on the estimated purchase volume of 536 tons of explosives for the 0.644km mileage project in the Guangxi Pinglu Canal, the explosives demand for the Zhejiang, Jiangxi and Guangdong Canal is estimated to be 1.65 million tons, and the corresponding explosives demand for the Jiangxi section is 0.99 million tons. Currently, Cathay Pacific Group's explosive equipment products are fully covered in Jiangxi Province, and the western Zhejiang and eastern Guangdong regions involved in the Zhejiang—Ganjiang—Guangdong Canal are also the company's key sales areas. Subsequently, with the gradual commencement of canal construction, demand for the company's explosives, detonators and blasting engineering services is expected to increase significantly in the next few years, which will strongly drive the company's performance improvement.

The construction of energy-containing materials is going well and is expected to increase the company's profits. Energy-containing materials are a new type of material that can undergo chemical reactions and release large amounts of energy under the action of high temperature/high pressure. They have excellent properties such as high density, high strength, and good stability, and have great potential for application in military fields such as debris warheads. In May 2024, the company announced that it plans to increase the capital of Jiujiang Cathay Pacific with 0.34 billion yuan of its own capital to build a new energy-containing material production line project with an annual output of 3,000 tons to 4,300 tons (multi-variety flexible). At present, the project is progressing smoothly. Among them, the preliminary design of the 001 line has passed expert review, the construction drawing design is nearing completion, and the earthwork project in the factory area has reached 70%. It is expected to be put into operation in June 2025, with an annual production capacity of 2,500 tons; the 003 line has completed technical agreements and other contracts, and is expected to be put into operation in mid-2026, with an annual production capacity of 500 tons to 1,800 tons. Energy-containing materials have high added value, and the company's layout of new energy-containing materials helps to significantly increase profit margins and further strengthen overall competitive strength.

Investment advice: We expect the company to achieve operating income of 2.665/3.011/3.621 billion yuan in 2024/2025/2026, up 4.89%/12.98%/20.24% year on year, and achieve net profit to mother 0.312/0.379/0.494 billion yuan, up 2.47%/21.35%/30.33% year over year, and the current stock price corresponding to 2024/2025/2026 PE is 26.83/22.11/ 16.96X, first coverage, gives a “Highly Recommended” rating.

Risk warning: risk of macroeconomic fluctuations; risk of fluctuations in raw material prices; risk of production safety; risk of project construction progress falling short of expectations.