Report summary

Key military protective equipment companies under the China Ordnance Equipment Group have undertaken 70% of the military's active duty breathable anti-gas suits and 100% of the military's active duty special anti-gas masks, and are in a central position in the industry.

The company has achieved a strategic layout for the comprehensive development of special protective equipment, pharmaceutical packaging and medical devices, and continuously improved its core competitiveness. The company is a domestic professional chemical defense military enterprise, mainly in the field of special protection. It mainly produces individual protective equipment and collective protective equipment to enhance the survival and combat capabilities of China's various military branches under nuclear, biological and chemical threats; at the same time, it actively explores the market for civilian products such as pharmaceutical packaging and medical devices, relying on technical advantages.

Special protective equipment has diverse application scenarios and strong consumable properties, and the space will be further enhanced in the future.

As an important component of the military's nuclear, biological and chemical protection, special protection has become an important factor in the country's strategic security. The company's special protective equipment has changed from a single military type to multiple military classes, and the product form has changed from a single unit to system integration, compounding the world's advanced level of development trends. At the same time, individual protective equipment and collective protective equipment are used once or periodically in different scenarios, and even if there is no actual combat during use, they still need to be maintained or replaced in a timely manner.

Pharmaceutical packaging pioneers, strong R&D capabilities, excellent product quality. Pharmaceutical packaging products such as pharmaceutical rubber stoppers and co-extruded films have changed from low added value to high added value.

The company pioneered the introduction of highly compatible pharmaceutical diaphragm plugs, which replaced domestic products. Currently, the company and the Institute of Automation of the Chinese Academy of Sciences have jointly developed equipment such as automatic vulcanization robots, automatic edge removal robots, and automatic light inspection machines, and are the first in the country to intelligentize the production process of pharmaceutical butyl rubber plugs.

In 2020, the company actively cooperated with the needs of COVID-19 vaccine research and development units and took the lead in becoming the core supplier of COVID-19 vaccine supporting rubber plugs with excellent quality, reflecting the company's technical accumulation and production capacity. At the same time, through continuous market development, the company has formed a complete marketing network and stable customer base in the field of pharmaceutical packaging materials, and has established long-term cooperative relationships with pharmaceutical companies such as Sinopharm Group, Guangzhou Pharmaceutical, Osecon Pharmaceutical, Luoxin Pharmaceutical, Yuekang Pharmaceutical, Haizheng Pharmaceutical, Weikang Pharmaceutical, and Luye Pharmaceutical.

Build a shareholding platform for employees and improve the long-term incentive mechanism.

The company implemented equity incentives for key technicians and management personnel through capital increases through two employee shareholding platforms. The share price was 5.97 yuan/share, and the number of shares granted was 15.947 million shares, which is reflected in deepening the reform of state-owned enterprises, speeding up the implementation of innovation-driven development strategies, further stimulating the enthusiasm and creativity of key technical and management personnel, and improving the quality and efficiency of the enterprise.

Huaqiang Technology is well-funded and has relatively low PB. Its asset strength is expected to strongly support the company's continued development.

Compared with comparable listed companies in Huaqiang Technology-related industries, Huaqiang Technology's monetary capital in the first three quarters of 2024 was 1.036 billion yuan, which is quite abundant and higher than the average of comparable companies. We believe that sufficient monetary capital also provides a better guarantee for the company's subsequent smooth expansion of production and product upgrades. Meanwhile, Huaqiang Technology's current PB level is lower than the PB average of comparable companies and is at a low level, and future valuations are expected to continue to recover. Based on the above view, we expect the company's revenue for 2024-2026 to be 0.577 billion yuan, 0.629 billion yuan, and 710 billion yuan, respectively, with net profit attributable to mother of 0.035 billion yuan, 0.04 billion yuan and 0.46 billion yuan respectively, and EPS of 0.10 yuan, 0.12 yuan and 0.13 yuan respectively. We give a “buy” rating based on the company's position in the industry and future development prospects.