A leading dry sorter company that concentrates on the coal field, and technology leads the industry trend. The company was founded in 2015, with the coal industry as the first entry point, deeply involved in dry coal sorting and the intelligence of the coal industry. It has become a leading enterprise in the field of coal dryers, and technology has always led the industry trend. The company's business mainly includes intelligent equipment, intelligent systems and instruments. Among them, the intelligent equipment is mainly the company's various coal and non-coal dry-sorting machines. The intelligent systems and instruments mainly include intelligent unmanned loading systems and intelligent coal preparation plant systems. In Q1-Q3 2022, the company's two business revenue was 203/091 million yuan respectively, accounting for 64.85% and 29.02% of business revenue respectively.

The disadvantages of wet mineral processing are gradually becoming apparent, and dry beneficiation is beginning to emerge: according to the company's prospectus, wet selection currently accounts for 95.76% of the coal selected in China. It is the most commonly used traditional sorting method. The dry penetration rate is only 4.24%, and there is plenty of room for improvement in the future. Water resources are limited in the central, western and northern regions of China, which are rich in coal resources, and wet selection will cause some peatable coal to produce slurry, causing coal recovery rates to decline and causing environmental pollution problems. Optoelectronic dry sorting equipment is a breakthrough in traditional bulk coal sorting. X-ray and gamma rays, infrared, visible light, laser and ultraviolet recognition, etc., establish corresponding models for different characteristics of objects and sort through different injection strategies.

The advantages of optoelectronic dry sorting are obvious, and it is expected to accelerate the replacement of some parts of wet coal preparation: 1) Judging from the sorting accuracy, the coal carrying rate in optoelectronic dry coal preparation can reach 1-3%, close to the shallow recirculation slot; 2) From an economic point of view, the cost of photoelectric dry sorting and processing is lower, and the product sales output is higher: according to the “Response to the review and inquiry letter of the application documents issued by Meiteng Technology for the first time and listed on the Science and Technology Innovation Board”, taking the example of a mine with an annual production capacity of 3 million tons, as an example, the photoelectric dry sorting and recycling tank process requires 9 units of shallow equipment. 32 units, and the initial system investment costs were 25 million yuan and 45 million yuan respectively, and Subsequent maintenance costs such as water consumption, electricity consumption, electricity consumption, labor costs, and depreciation are 692 million yuan/year, respectively. Furthermore, refined coal selected by optoelectronics has a lower moisture content, which avoids the generation of secondary slime, and can achieve higher tonnes of coal output of about 17.54 million yuan/year, which is remarkable for its economy. 3) From a policy perspective, at present, the country and the coal industry are increasingly supporting the election, technology continues to mature, and industry regulations are being improved. According to our estimates in our previous report “Mining Machinery Special Report Series (1): The Blue Ocean of Dry Processing Starts, Focus on Equipment Investment Opportunities”, the cumulative market size of intelligent dry sorting equipment in the domestic coal sector is about 22 billion yuan, and the cumulative global market space is about 44 billion yuan.

Entering the non-coal mining sector and industry opens up a second growth space: non-ferrous metals, ferrous metals, non-metallic mining industries have similar sampling processes with the coal industry, and coal sorting requires higher indicators, so moving dry sorting technology in the coal industry to the non-coal sector has certain advantages. The company's intelligent dry sorting business (XRT) has now signed sales contracts in the fields of phosphate ore, bauxite, and vanadium ore, and has also achieved breakthroughs in recognition technology in other minerals such as lead and zinc, copper, fluorite, manganese, and tungsten. According to our estimates in our previous report “Mining Machinery Special Report Series (1): The Blue Ocean of Dry Processing Starts, Focus on Equipment Investment Opportunities”, the cumulative market space for intelligent dry sorting equipment in domestic non-coal mines is about 10.5 billion yuan, and the cumulative market space for overseas non-coal mines is about 14.7 billion yuan. In 2021, the company's XRT products achieved revenue of 21 million yuan, accounting for 5.44% of revenue. As of Q3 2022, the company's XRT orders in hand were 65 million yuan.

There are plenty of on-hand orders, and the expansion of fund-raising projects helps the company's long-term development: according to the company's prospectus, the amount of on-hand orders at the end of Q3 2022 was 697 million yuan, and for the full year of 2021 it was about 557 million yuan. There are obvious monthly fluctuations in the company's production, and production capacity is tight during the peak season. The total investment in this fund-raising project is 121 million yuan, mainly to build an intelligent equipment production and testing base. It is expected that after delivery, the company will produce 80 new intelligent dry sorting equipment and other instruments per year to better meet market demand. According to the company's prospectus, the estimated construction period of the project is 18 months, and production capacity is expected to reach 60%/80%/100% in the first year of trial operation and the second and three years.

Profit forecasting and investment ratings: Currently, job selection is in the stage of rapid increase in penetration rate. The company is a leading domestic smart dryer company and is expected to fully benefit from changes in industry technology trends. We expect the company to achieve operating income of 511/ 727/ 968 million yuan in 2022-2024, and net profit of 118/1.70/225 million yuan. The corresponding PE was 29.2/20.4/15.4 times respectively, covered for the first time, and gave it an “increase in holdings” rating.

Risk warning: downstream demand falls short of expectations, technology research and development falls short of expectations, coal industry sentiment fluctuates, market competition increases risks