xuefeng Sci-Tech(group)(603227) 民生证券·2024-09-10 07:00Investment Rating - The report gives a "Recommend" rating for Xuefeng Technology (603227 SH) with a target price of 7 04 yuan [6] Core Views - Xuefeng Technology is a leading company in Xinjiang with dual main businesses in civil explosives and energy chemicals The company benefits from the high prosperity of the civil explosives market in Xinjiang and the integration of Guangdong and Xinjiang state-owned assets which is expected to open up new capacity expansion opportunities [1][2] - The company's civil explosives business is driven by strong demand from coal mining and infrastructure projects in Xinjiang with industrial explosives production capacity of 11 75 million tons per year and electronic detonator capacity of 18 9 million units per year [2] - The energy chemical business particularly urea and melamine continues to contribute to the company's performance with urea production capacity of 600 000 tons and melamine production capacity of 210 000 tons [3] - Xuefeng Technology is the only producer of ammonium nitrate in Xinjiang with a capacity of 660 000 tons and a market share expected to reach 85% in 2024 The business has a high gross margin of 38 09% and a ton gross profit of 1 000 yuan [4] Business Segments Civil Explosives - The civil explosives industry in Xinjiang is experiencing high prosperity driven by coal mining and infrastructure projects The industry is consolidating with the top 10 companies expected to account for 60% of production value by 2025 [2] - Xuefeng Technology's civil explosives business focuses on integrated engineering blasting services with a production capacity of 11 75 million tons of industrial explosives and 18 9 million electronic detonators per year [2] - The company's civil explosives business is expected to benefit from the integration with Guangdong Hongda which will support capacity expansion in Xinjiang [2] Energy Chemicals - The energy chemical business primarily involves the production of urea melamine ammonium nitrate and nitro compound fertilizers The company has a production capacity of 600 000 tons of urea 210 000 tons of melamine and 900 000 tons of nitro compound fertilizers [3] - Urea production is operating at a high utilization rate of 102 66% in 2023 while melamine production has a utilization rate of 86 95% [3] - The company's melamine sales reached 195 400 tons in 2023 a year-on-year increase of 27 63% with an average selling price of 5 669 20 yuan per ton [3] Ammonium Nitrate - Xuefeng Technology is the only producer of ammonium nitrate in Xinjiang with a production capacity of 660 000 tons The company's ammonium nitrate business has a high gross margin of 38 09% and a ton gross profit of 1 000 yuan [4] - In 2023 the company produced 330 500 tons of ammonium nitrate with 230 500 tons sold externally and 100 000 tons used internally for industrial explosives production [4] Financial Projections - The report forecasts that Xuefeng Technology's revenue will reach 6 767 billion yuan in 2024 7 359 billion yuan in 2025 and 8 029 billion yuan in 2026 with net profit attributable to the parent company of 796 million yuan 907 million yuan and 1 007 billion yuan respectively [5] - The company's PE ratio is expected to be 9x 8x and 7x for 2024 2025 and 2026 respectively significantly lower than the industry average [5] Industry Analysis - The civil explosives industry is benefiting from increased capital expenditure in coal mining and metal mining with coal mining fixed asset investment growing by 16 6% year-on-year in the first half of 2024 [2] - Xinjiang's coal production is growing rapidly with a year-on-year increase of 15% in the first seven months of 2024 driving demand for civil explosives and ammonium nitrate [4] - The integration of Guangdong and Xinjiang state-owned assets is expected to create new opportunities for capacity expansion and market consolidation in the civil explosives industry [2]