Event:
Recently, affected by the concept of electronic detonator, the civil explosives sector and individual stocks fluctuated significantly. As of the closing on February 9, the SW civil explosives sector rose by 11.38% in the three trading days of the week, ranking the second in the third sub sector of SW chemical industry; Individual stocks such as Shenzhen King Explorer Science And Technology Corporation(002917) , Poly Union Chemical Holding Group Co.Ltd(002037) , Hunan Nanling Industry Explosive Material Co.Ltd(002096) , Shanxi Huhua Group Co.Ltd(003002) , Hubei Kailong Chemical Group Co.Ltd(002783) rose one after another. To this end, we conducted a brief inventory of the main drivers of the current round of sector rise.
Key investment points:
Industrial detonators have a serious overcapacity and the utilization rate has been low for a long time. During the 14th five year plan, the application of digital electronic detonators has been accelerated: China's civil explosive industry has long had the problems of regional structural overcapacity and overall oversupply. The utilization rate of industrial detonators in the subdivided categories is low all year round. According to the annual report data disclosed by various enterprises, In 2020, the average capacity utilization rate of the industry is less than 45%. At the beginning of the 13th five year plan, China has accelerated the high-quality development of civil explosives and industrial detonators, encouraged the replacement of ordinary detonators with electronic detonators, and implemented point withdrawal and line merging to resolve the problem of overcapacity of detonators. In 2018, the opinions on promoting the high-quality development of civil explosive industry issued by the Ministry of industry and information technology proposed to transform and upgrade ordinary detonators into digital electronic detonators in proportion. The production, sales and proportion of electronic detonators began to rise rapidly. According to the data released by China blasting equipment industry association, in 2021, the output of industrial detonators in China was 890 million, a year-on-year decrease of 6.9%, and the sales volume was 905 million, a year-on-year decrease of 8.9%; Among them, the output of electronic detonators was 164 million, with a year-on-year increase of 40.3%, and the sales volume was 158 million, with a year-on-year increase of 38.5%, accounting for a year-on-year increase of about 6pcts, reaching 18.4%. During the 14th Five Year Plan period, the state's management measures for industrial detonators were upgraded again. The Ministry of industry and information technology indicated in the safety development plan for civil explosives Industry issued in November 2021 that during the 14th Five Year Plan period, industrial digital electronic detonators will be fully promoted, except that a small amount of production capacity will be reserved for export or other permitted special purposes, Stop production before the end of June 2022 and stop selling industrial detonators other than industrial digital electronic detonators before the end of August 2022. This means that the replacement tide of digital electronic detonators has officially arrived.
The scale of industrial detonator industry is expected to expand significantly, and the price of electronic chips, the core raw material, fluctuates greatly
Larger: compared with the traditional ordinary industrial detonator, the digital electronic detonator has more safety, convenience and economy. The added electronic chip is the core link of the digital electronic detonator and the main raw material of the digital electronic detonator. With the rapid growth of the production and sales of digital electronic detonators in China in recent years, the electronic chip technology has been gradually replaced by domestic imports, and the application cost is decreasing year by year. According to the Shanxi Huhua Group Co.Ltd(003002) prospectus, the average unit price of electronic chips purchased by the company in 2019 was 5.60 yuan / hair, and the corresponding average price of digital electronic detonators was 19.97 yuan / hair. In the same period, the average prices of traditional industrial electric detonators and detonator detonators were 1.59 yuan / hair and 2.78 yuan / hair respectively, and the comprehensive average price of industrial detonators was about 2.55 yuan / hair. As the traditional industrial detonator industry has been relatively mature and the price and profit level are relatively stable, the market scale of the industrial detonator industry in 2021 is about 2.3 billion yuan based on the average price of 2.55 yuan / hair (based on the total sales volume of 905 million hair). With the rising popularity of digital electronic detonators, capacity expansion has formed a scale effect, and there is still some room for decline in production costs and selling prices. For the existing detonator production line, the specific production capacity is adjusted to the ratio of 1:2 for the replacement of the existing detonator production line. In addition, for the replacement of the existing detonator production line, the specific production capacity is adjusted to the ratio of 1:2 for the replacement of the existing detonator production line, After the replacement, the market scale of industrial detonators is expected to increase by 96% - 233%. In combination with the national development goal of "continuous improvement of industrial concentration and further reduction of the number of enterprises" for the civil explosive industry during the 14th Five Year Plan period, this round of replacement of digital electronic detonators may become a new development opportunity for the leading civil explosive enterprises. At this stage, most civil explosive enterprises are still in the stage of changing production capacity, Enterprises with leading production capacity of existing digital electronic detonators and mastering the core technology of electronic chips are expected to benefit first.
Risk warning: the implementation of the capacity replacement policy of electronic detonator is less than the expected risk; The demand for electronic detonators is lower than the expected risk; Risk of sharp fluctuation in the price of electronic detonators; The price of electronic chip, the core raw material of electronic detonator, fluctuates sharply.
