Key elements of the report

On August 19, Guangdong Hongda released its half-yearly report for 2022. During the reporting period, the company achieved operating income of 4.36 billion yuan, an increase of 22.76% over the same period last year, and the net profit belonging to shareholders of listed companies was 252 million yuan, an increase of 19.49% over the same period last year.

Main points of investment:

There was a significant increase in market development and efficiency in the mining service sector, and the Q2 performance improved significantly compared with the previous month: the company's Q2 realized operating income of 2.571 billion yuan, an increase of 24.54% over the same period last year, an increase of 43.75% over the previous year; and a net profit of 211 million yuan, an increase of 53.83% over the same period last year, and an increase of 412.35% over the previous year. The company's Q2 performance improved significantly compared with the previous year, H1 performance grew steadily compared with the same period last year, the main driving factors are two: 1. During the reporting period, domestic demand for mineral products increased, mining enterprises had a strong willingness to start work, at the same time, the company continued to expand the market for major customers in key regions, expanding market share, and opened up new projects in Guinaya and Columbia. Plate revenue increased by 30.14% year-on-year to 3.188 billion yuan, plate efficiency improved synchronously, and gross profit margin increased 2.39pcts to 17.06% year-on-year. two。 There is a strong demand for explosives in Inner Mongolia and Gansu, and regional sales increased by 3.54% and 44.72% respectively compared with the same period last year. Coupled with the increase in the price of raw material ammonium nitrate, the company took measures to increase the price of explosives at the end of last year. During the reporting period, the total operating income of the civil explosive plate reached 1.022 billion yuan, an increase of 23.06% over the same period last year. According to Baichuan Yingfu data, the average market price of 2022H1 ammonium nitrate is 2765.43 yuan / ton, an increase of 30.30% over 2021H1 and 9.64% over 2021H2. The further rise in ammonium nitrate prices has had a certain adverse impact on the profitability of the company's private explosion sector. under the company's optimization of production capacity layout and effective cost control, the overall gross profit margin of the civil explosion sector only slightly fell 2.53pcts during the reporting period compared with the same period last year, to 29.37%. During the reporting period, the company's defense equipment products were affected by delivery and other factors, and the revenue was not recognized. The total operating income was 32.7434 million yuan, down 86.60% from the same period last year. It is expected that the order revenue will increase in the second half of the year as the order revenue is gradually confirmed.

The newly established subsidiary will speed up the development of the western market and expand the territory of the mine service civil explosion business: in recent years, through mergers and acquisitions in the rich mineral areas, the company has successfully opened the western civil explosion market while increasing the production capacity of explosives. During the reporting period, the company carried out technical reforms on part of the explosive production capacity, and the total production capacity has been increased to 501000 tons. Under the company's service mode of "integration of mining and civil explosion", the acquisition of civil blasting capacity in rich mining areas also helps the company to develop local mining service business. During the reporting period, the company's subsidiaries grand engineering and Xingan Minbao successively set up three new subsidiaries: Xinjiang grand, Jiuquan Xingan and Pingliang Xingan, whose main business is mine construction services and civil blasting equipment sales respectively. Jiuquan Xingan and Liangxingan has begun to contribute profits to the company. The establishment of the new subsidiary is expected to help the company accelerate its entry into the local mining service market, expand its business territory, and consolidate the company's "first explosion" industry position.

Profit forecast and investment suggestion: it is estimated that the net profit of homing in 2022-2024 will be RMB 642q741 million, and the corresponding PE will be 44.9pm 37.8max 32.8 (corresponding to the closing price of RMB 32.42on August 19th). Maintain the "overweight" rating.

Note: considering the landing cycle of military trade business and the order quantity and amount of different products after landing, the military trade business income will have a strong uncertainty, which will lead to a large deviation in profit forecast, which is of little practical reference significance. Based on the principle of prudence, we temporarily exclude the forecast of military trade performance from the profit forecast, which is an estimate of the future performance of the company's existing main business. It is intended to reflect the development trend of the company's existing business after excluding the progress of the military trade sector, while the future performance of the military trade business brings higher growth flexibility for the company.

Risk factors: military trade business order landing schedule is not as expected risk; raw material price fluctuation risk; military information opaque risk; mine clothing, civilian explosion performance is not as expected risk; military trade product progress is not as expected risk.