Analyst: Zhu Haibin S0790522080007
Zhao Hao S0790522080002
Engineering safety monitoring "little giant"
Energy, water and other industries drive growth
#看点一: Rooted in the industry for more than 20 years, to create a leading supplier of safety monitoring instruments
Jikang Instruments is engaged in intelligent monitoring terminals (precision sensors + intelligent data acquisition equipment) and security monitoring Internet of Things solutions and services, accounting for 74%/26% respectively in 2022, and its customers are mainly large and medium-sized state-owned enterprises, design institutes, scientific research institutes, construction bureaus, universities, etc. in the fields of energy, water conservancy, transportation construction, smart cities and geological disasters. In 2022, the company will achieve revenue of 299 million yuan (+15%), net profit attributable to the parent of 60.5498 million yuan (+20%), and gross margin/net profit margin of 51%/20% respectively. We expect the company's net profit attributable to the parent in 2023-2025 to be 0.72/0.86/100 million yuan, corresponding to EPS of 0.52/0.61/0.72 yuan per share, corresponding to the current stock price PE of 13.9/11.7/10.0 times, respectively.
#看点二: Investment in instrumentation manufacturing increased by more than 20%, and scientific instruments accelerated the road to localization
From the perspective of gross domestic product, domestic GDP in 2022 will reach 121 trillion yuan, a year-on-year increase of 5.3%. From 2020 to 2022, the investment in fixed assets in the mainland manufacturing industry maintained a high growth trend, and the investment in fixed assets in the manufacturing industry increased by 9.10% in 2022, of which the investment in instrumentation manufacturing increased by 37.80%, which had an obvious pulling effect. In recent years, the state has introduced a number of policies conducive to the development of safety monitoring in various industries, promoting the acceleration of domestic substitution of scientific instruments. The company has participated in the safety monitoring projects of most domestic nuclear power plants, and gradually realized the domestic replacement of foreign instruments based on the principle of vibrating string sensors, fiber grating sensors, etc., deepening the "moat" of broadening the company's business.
#看点三: The downstream industry is growing steadily, and engineering safety monitoring products are the "eyes and ears" of infrastructure construction
Energy, water conservancy and transportation industries are the pillars of the company's performance, and the company's products are mainly used in the field of engineering safety monitoring in these three industries. In the first 8 months of 2023, the new water conservancy projects and investment completion in mainland China reached a record high, and the company has made layouts in related fields. Overall, it is estimated that the average annual market space of the three sub-industries of energy, water conservancy and transportation during the "14th Five-Year Plan" period will be about 3.143 billion yuan, and the revenue of energy, water conservancy and transportation industries in 2021 will be 213 million yuan, accounting for 82.20% of the company's revenue, with a total market share of 6.78%, and there is still much room for improvement. In addition, smart city (the company is involved in the safety monitoring part of public infrastructure) and geological disaster industry (the company is involved in the safety monitoring of geological disasters, groundwater and mine geology) will become the company's performance growth points.
#风险提示: the risk of slowing down in infrastructure construction investment and the risk of bad debt loss of accounts receivable
【Contents】
1. Point 1: Rooted in the industry for more than 20 years, to create a leading supplier of safety monitoring instruments
1.1. Business area: intelligent monitoring terminal + security monitoring Internet of Things, the former will generate 74% revenue in 2022
1.2. Customer resources: covering 5 major industries such as energy and water conservancy, mostly large and medium-sized enterprises and design institutes
1.3. Competitive advantage: Unique vibrating string sensing technology, intelligent data acquisition equipment expansion doubled
1.3.1、 Technical advantages: In the past five years, the company's R&D expense rate has exceeded 7%, and 43 national patents have been obtained in 2023H1
1.3.2、 Brand advantage: thousands of large and medium-sized engineering projects have been completed, and the winning bid rate will reach 57% in 2021
1.3.3、 Fundraising and investment projects: It is planned to expand the production of 6533 intelligent data collection equipment per year, with a new expansion ratio of 113%
2. Point 2: Investment in instrumentation manufacturing increased by more than 20%, and scientific instruments accelerated domestic substitution
2.1. In 2022, the domestic GDP will reach 121 trillion yuan, and manufacturing investment will increase by 9.10%
2.2. In 2021, the revenue of the instrumentation industry will exceed 900 billion yuan, and the policy is favorable for domestic substitution
3. Point 3: The downstream industry is growing steadily, and safety monitoring products are the "eyes and ears" of infrastructure construction
3.1. The energy, water conservancy and transportation industries are the pillars of the company's performance, accounting for 82% of revenue in 2021
3.1.1、 Energy industry: It is expected that the average annual investment in power supply construction is 500 billion yuan, and the safety monitoring market capacity is 500 million yuan per year
3.1.2、 Water conservancy industry: It is expected that the average annual investment is 800 billion yuan, and the market capacity of safety monitoring products is 900 million yuan per year
3.1.3、 Transportation industry: highway bridges and tunnels, high-speed rail bridges and tunnels will develop steadily, with a safety monitoring market capacity of 1.8 billion yuan per year
3.2. The growing demand for smart cities and geological hazard industries is favorable to the engineering safety monitoring market
3.2.1、 Smart city: The market size will be 18.7 trillion yuan in 2021, and the demand for engineering safety testing will increase
3.2.2、 Geological disasters: There were 4,772 geological disasters in 2021, and 11.1 billion yuan will be invested in monitoring and early warning funds from 2018 to 2020
4. Point 4: The scale of the company is at a medium level, and the gross profit margin is better than that of comparable companies
5. Profit forecast and investment advice
6. Risk Warning
Attached: Summary of financial projections
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1. Point 1: Rooted in the industry for more than 20 years, to create a leading supplier of safety monitoring instruments
Founded in 1998, the company is engaged in the research and development, production and sales of intelligent monitoring terminals (precision sensors, intelligent data acquisition equipment), and provides security monitoring Internet of Things solutions and services. Based on precision sensors and intelligent data acquisition equipment, with mobile Internet, Internet of Things, cloud computing technology as the carrier, and monitoring and early warning cloud service platform as the core, we build a safety monitoring and early warning system to provide convenient, reliable, professional and intelligent digital services in the field of engineering safety monitoring for customers in the energy, water conservancy, transportation, smart city and geological disaster industries.
Since 1998, it has focused on the research of vibrating string sensing technology, gradually developed photoelectric sensing technology in 2004, and put into production four types of photoelectric sensing instruments, in 2007 took the lead in the industry to launch a full range of fiber grating geotechnical monitoring instruments, in 2012 began to study the Internet of Things integrated application technology, and began to build the Kikang G cloud platform. In recent years, the company has shifted its focus to cloud platform integration technology, launched G cloud integrated management platform V6.0, G cloud three-dimensional display platform V1.0 and other software, and obtained a series of software copyrights.
From the perspective of equity, as of the first half of 2023, Jiang Xiaogang directly controls 28.88% of the company's shares, and indirectly controls 5.77% and 3.16% of the company's shares through Xinhua Jikang and its concerted actor Jiang Danthorn, respectively, Mr. Jiang Xiaogang and Ms. Jiang Danthorn are father-daughter relationships, and Jiang Xiaogang directly and indirectly controls 37.81% of the company's shares, which is the company's controlling shareholder and actual controller.
1.1. Business field: intelligent monitoring terminal + security monitoring Internet of Things, the former will generate 74% revenue in 2022
The company's main products include intelligent monitoring terminals (precision sensors, intelligent data acquisition equipment), security monitoring Internet of Things solutions and services. Based on precision sensors and intelligent data acquisition equipment, with mobile Internet, Internet of Things, cloud computing technology as the carrier, and monitoring and early warning cloud service platform as the core, the company builds a safety monitoring and early warning system, and provides safety monitoring Internet of Things solutions and services in the field of engineering safety monitoring for customers in the energy, water conservancy, transportation, smart city and geological disaster industries, including system design, system integration, construction, etc.
Intelligent monitoring terminal products are the company's main source of income, accounting for 80.30%, 79.24%, 67.95%, 75.00% and 73.72% of the company's revenue from 2018 to 2022, maintaining a high level overall. The company's intelligent monitoring terminals include precision sensors and intelligent data acquisition equipment, of which precision sensors as superior products occupy a high proportion and increase rapidly. In 2021, the company's intelligent monitoring terminal revenue will be 194 million yuan, a year-on-year increase of 34.72%, of which precision sensing revenue will be 158 million yuan, a year-on-year increase of 40.42%, which is the company's main source of sales growth. In recent years, with the increase in demand from downstream industries, the sales revenue of traditional precision sensor equipment has steadily increased.
Safety monitoring Internet of Things solution is mainly for system integration engineering projects, according to the project requirements, not only provide the supply of intelligent monitoring terminal products, but also carry out related civil engineering, intelligent monitoring terminal product installation, buriing, commissioning, training in the process of project implementation, as well as project acceptance, monitoring data collation, calculation and analysis and software system online operation, display, maintenance and upgrading, etc., for the project to establish a set of timely feedback of building operating conditions of safety monitoring automation system. Provide users with complete perception layer (precision sensor), transmission layer (data collector), application layer (cloud platform software) engineering monitoring IoT services.
Based on long-term research and development, the company subsequently launched the IoT data collection platform - G cloud platform, providing public cloud and private cloud services. G cloud terminal products have the characteristics of strong performance, high stability and good compatibility. Based on the Internet of Things technology and cloud computing technology, G cloud is an open cloud platform and data center serving the monitoring industry, and builds a convenient and fast bridge between users and various monitoring equipment. Provide users with a variety of services such as remote collection, transmission, storage, processing and early warning information transmission of sensor data, video images and pictures, and realize third-party public services such as cloud storage, real-time monitoring, visual management, data early warning, and risk control.
Affected by the increase in demand from various downstream industries, the company's revenue scale increased from 153 million yuan to 299 million yuan from 2018 to 2022, with a CAGR of 18.31%, and the company's revenue achieved rapid growth. Since the capital expenditure behavior of industry customers mostly occurred in the second half of the year, the company's revenue had seasonal volatility, and the revenue in 2022H1 reached 113 million yuan, a year-on-year increase of 28.94%, accounting for 43.46% of the annual revenue in 2021. Safety monitoring sensors and intelligent instruments are mainly used in power energy, water conservancy, transportation and construction industries, customers are mainly state-owned large and medium-sized enterprises, design institutes, scientific research institutes, etc., usually in the first quarter of each year to develop investment plans, annual capital expenditures such as engineering construction and equipment installation are mainly concentrated in the second half of the year, so the first quarter of income is less, income is mainly concentrated in the second half of the year.
The proportion of sales of the company's high gross profit intelligent monitoring terminal products fluctuates greatly, resulting in large fluctuations in the comprehensive gross profit margin of the company's products. From 2018 to 2023H1, the comprehensive gross profit margins of the company's products were 51.58%, 52.57%, 49.39%, 51.60%, 50.79% and 57.06%, respectively. The company's intelligent monitoring terminal products have high technical content and good brand awareness, so the gross profit margin of sales has remained at a high level all year round, and the gross profit margin of intelligent monitoring terminals in 2022 will be 60.92%, accounting for 73.72% of the total revenue, accounting for a year-on-year decrease of 1.28pcts. Solution products not only involve the supply of equipment, but also need to provide a series of civil engineering services such as auxiliary materials, transportation, drilling construction, installation and commissioning, so the sales cost is high, the gross profit contribution comes from the supply of self-produced equipment, and the gross profit margin of solution products in 2022 is 22.38%, which is a large gap with the gross profit margin of intelligent monitoring terminal products.
In 2020, affected by the epidemic, business entertainment expenses and travel expenses decreased more in that year, and the sales expense ratio decreased significantly. From 2018 to 2023H1, the company's sales expenses were 21.6616 million yuan, 23.0114 million yuan, 19.6604 million yuan, 28.9224 million yuan, 29.9452 million yuan and 14.0664 million yuan respectively; The sales expense ratio was 14.20%, 13.45%, 9.26%, 11.16%, 10.02% and 10.54%, respectively. The company's overall management expense ratio is currently maintained at about 10%. From 2018 to 2023H1, the company's management expenses were 19.7744 million yuan, 20.3545 million yuan, 20.5774 million yuan, 25.2693 million yuan, 26.146 million yuan and 12.4986 million yuan, and the management expense rates were 12.96%, 11.90%, 9.69%, 9.75%, 8.75% and 9.37% respectively.
Due to the increase in downstream demand, the company's revenue growth, and good expense control, the overall expense ratio showed a downward trend, resulting in the company's net profit margin rising year by year, from 9% in 2018 to 23% in 2023H1. From 2018 to 2022, the company's net profit attributable to the parent increased from 14.2487 million yuan to 60.5498 million yuan, with a CAGR of 43.58%, showing a rapid growth trend, and the net profit attributable to the parent in 2022 increased by 20.17% year-on-year, and the growth rate slowed down.
1.2. Customer resources: covering 5 major industries such as energy and water conservancy, mostly large and medium-sized enterprises and design institutes
The company's main products include intelligent monitoring terminals and security monitoring Internet of Things solutions and services. The company's products and services are mainly used in the field of engineering safety monitoring, and the end customers are mainly large and medium-sized state-owned enterprises, scientific research institutes, design institutes, construction bureaus, universities, system integrators, etc. in energy, water conservancy, transportation, geological disasters, smart cities and other industries. The company's customers include three types: end users, contractors and traders.
The sales revenue of the top five customers in 2022 will be 85.35 million yuan, an increase of 38.04 million yuan over the previous year, and the total sales revenue will account for 28.55%, compared with only 18.25% in 2021. In 2021, the company's top five customers are PowerChina, Guizhou Geological Environment Monitoring Institute, Yangtze River Water Conservancy Commission, Beijing SOIL Instruments, and CNPC Longhui, of which the largest customer PowerChina accounted for 14.67% of the total revenue, and the customer concentration was moderate. In 2022, the largest customers accounted for 11.78% of the total revenue, and the concentration of customers decreased slightly. Downstream customers are concentrated in energy, water conservancy, transportation, smart city and geological disasters and other industries such as state-owned large and medium-sized enterprises, scientific research institutes, design institutes, construction bureaus, universities, system integrators and other units.
1.3. Competitive advantage: unique vibrating string sensing technology, intelligent data acquisition equipment expansion doubled
1.3.1、Technical advantages: In the past five years, the company's R&D expense rate has exceeded 7%, and 43 national patents have been obtained in 2023H1
After years of continuous exploration and innovation in the engineering safety monitoring sensor industry, the company has accumulated a wealth of technology and technology, and has continuously developed and innovated on the basis of general technology in the industry, and gradually formed the company's unique technology, and the company has mastered 4 industry general technologies and 11 unique technologies. The company protects its unique technology by applying for patents, and by the end of 2022, it has obtained 40 national patents, including 16 invention patents. The company's R&D investment in each year is relatively stable, and the R&D expenditure in 2022 will be 21.6831 million yuan. Affected by revenue growth, the R&D expense ratio has decreased year by year, and the R&D expense ratio from 2018 to 2022 is 11.52%, 10.69%, 8.73%, 7.57% and 7.26%, respectively.
Through years of innovation and accumulation, the company has mastered a series of core technologies. It includes five core technologies, including vibrating string sensing technology, fiber grating sensing technology, photoelectric sensing technology, Internet of Things integrated application technology, and cloud service platform application technology.
(1) Vibrating string sensing technology is used in all kinds of vibrating string sensors, the company has participated in the preparation of more than a dozen national standards and industry standards, and the vibrating string sensor developed and produced has the characteristics of high durability and high precision;
(2) FBG sensing technology is used in all kinds of FBG sensors, with high performance, anti-interference, high stability, ultra-long distance transmission and other advantages;
(3) photoelectric sensing technology uses photoelectric conversion effect to measure the deformation and displacement of building structure, the company has a number of patented technologies in the field of photoelectric sensing, based on "CIS photoelectric displacement sensor" invention patent technology development of products in the competition of similar products has a competitive advantage;
(4) Internet of things integrated application technology is mainly used in various types of data acquisition instruments, the equipment can integrate a variety of Internet of Things communication technology (4G, NB-IoT, LORA, WIFI), compatible with a variety of application sensors, high measurement accuracy, diverse communication methods, with a strong market competitive advantage;
(5) Cloud service platform application technology is mainly used in G cloud platform series software, the application of distributed cloud computing technology and big data processing algorithms, to achieve the collection and storage of massive monitoring data, hierarchical data sharing, large-scale data online monitoring and the classification application of data in various industries, to create a data center platform integrating data collection, sharing, management and application, providing efficient solutions for customers' data utilization.
The company has a variety of principles of engineering safety monitoring sensors, complete product line, according to the advantages of different principles of sensors, to provide a set of comprehensive solutions for data collection, transmission and collection under various working conditions of engineering safety monitoring during construction and operation and maintenance. The vibrating string sensor developed by the company has good long-term stability and reliability, strong environmental adaptability, and is suitable for water conservancy, hydropower, nuclear power and other industries; FBG sensors can transmit ultra-long distances and monitor dynamically, which is suitable for application scenarios such as bridge engineering safety monitoring that require dynamic monitoring; Photoelectric sensors have ultra-high accuracy and can meet the needs of horizontal and vertical displacement monitoring of structures such as concrete dam projects. In terms of intelligent data collection equipment, the company's products have strong compatibility, good long-term stability, and rich communication interfaces, which can adapt to the automatic data collection and transmission needs under various working conditions of engineering safety monitoring during the construction period and operation and maintenance period. The company's cloud service platform software has strong data processing capabilities and strong compatibility with various devices, which can allow users to obtain engineering safety monitoring data more conveniently.
As of June 30, 2023, the company has 43 national utility model and invention patents, won 1 second prize of national technical invention award, 2 provincial and ministerial awards, 6 industry association/association awards, and participated in the drafting and compilation of a total of 14 national and industry standards.
From the perspective of personnel, the company has gathered a group of R & D talents with electronic engineering, mechanical engineering, automation engineering, computer science, industrial design and other professional academic backgrounds, R & D team in the field of monitoring sensors and instrumentation has good technical accumulation and development experience, as of 2022, a total of 58 R & D personnel, accounting for 21.72% of the total number of employees.
Through independent research and development, the company has formed core technologies with independent intellectual property rights: "vibrating string sensing technology", "fiber grating sensing technology", "photoelectric sensing technology", "Internet of things integrated application technology", "cloud service platform application technology" and so on. In the future, the company will conduct research and development on sky-ground multi-parameter monitoring system, micro-power wireless WAN sensing technology, low-power 3D attitude monitoring device based on MEMS, deformation monitoring system based on image recognition, G cloud platform based on BIM 3D technology, wireless ranging system based on UWB technology and other related topics, rapidly improve the product layout of energy, water conservancy, transportation, smart city and geological disasters, and expand the market scale.
1.3.2. Brand advantage: thousands of large and medium-sized engineering projects have been completed, and the winning rate will reach 57% in 2021
Due to the long life cycle of large structures, the requirements for equipment performance stability, monitoring data reliability and after-sales maintenance timeliness are high, and suppliers with high brand awareness and good industry reputation are generally preferred. The company has accumulated a number of high-quality customers and formed a good brand effect, the key projects include: (1) water conservancy: Three Phases, Baihetan, Wudongde Hydropower Station, etc.; (2) Nuclear power: Liaoning Hongyanhe River, Guangxi Fangchenggang Nuclear Power Plant, etc.; (3) Transportation: Beijing-Shanghai, Lanxin high-speed railway, Pudong, Daxing International Airport, etc.; (4) Smart cities: Hefei and Chongqing smart cities; (5) Geological disasters: Guizhou and Yunnan geological disaster monitoring and early warning projects. Under the influence of downstream demand and brand effect, the number of winning projects in bidding has increased year by year in recent years, and from 2018 to 2021, the number of project bids was 35, 39 and 52 respectively, and the bidding rate of projects was 56%, 53% and 57%, and the number of winning bids in 2021 increased by 33.33% year-on-year.
1.3.3、Fundraising and investment projects: It is planned to expand the production of 6533 intelligent data collection equipment per year, with a new expansion ratio of 113%
The Company intends to publicly issue up to 13,000,000 shares (inclusive of the principal amount, without consideration of the exercise of the over-allotment option) or up to 14.95 million shares (including the principal amount, including the exercise of the over-allotment option) to unspecified qualified investors. The company intends to raise 84.5542 million yuan this time, of which 42.202 million yuan will be used to invest in the "intelligent monitoring terminal capacity expansion project" and 42.3522 million yuan will be used to invest in the "R&D center construction project".
The "Intelligent Monitoring Terminal Capacity Expansion Project" intends to expand the company's overall production scale by renovating and transforming the production plant and related functional spaces; While expanding the production capacity of existing sensors, data acquisition equipment and other advantageous products, it is planned to industrialize the production of micro-power acquisition terminals, multi-parameter monitoring terminals, fiber grating interrogators and other products with good market prospects. At present, the company's existing production capacity of precision sensors is 65,845 sets per year, and 5,772 intelligent data acquisition equipment per year; The new precision sensor production capacity of the fundraising project is 18,410 pieces per year, and the production capacity of new intelligent data acquisition equipment is 6,533 sets per year, so the expansion ratio of new precision sensors is 27.96%, and the expansion ratio of new intelligent data acquisition equipment is 113.19%. The construction of the project will help the company accelerate the industrialization of technological achievements with independent intellectual property rights, enrich product categories, enhance the market share of the company's products, and then improve the company's comprehensive competitiveness.
At the same time, the project will introduce advanced automated production, testing and warehousing equipment, including automated production lines, automatic computer peeling machines, automatic screw machines, automatic pressure calibration tables, intensive access to three-dimensional warehouses, etc., to further improve the production accuracy and production speed of products. The improvement of automation level will make product quality more stable and production efficiency be improved. In addition, automated production equipment is conducive to saving labor costs and reducing raw material losses, thereby reducing production costs and improving the company's comprehensive competitive advantage.
2. Point 2: Investment in instrumentation manufacturing increased by more than 20%, and scientific instruments accelerated domestic substitution
2.1. In 2022, the domestic GDP will reach 121 trillion yuan, and manufacturing investment will increase by 9.10%
Since 2013, China's gross domestic product (GDP) has continued to grow, crossing several "thresholds" in a row. Affected by the epidemic, China's GDP grew by 2.3% in 2020 and rebounded strongly in 2021. In 2022, China's GDP reached 121 trillion yuan, a year-on-year increase of 5.3%, and in the first half of 2023, its GDP was 59.3 trillion yuan, a year-on-year increase of 5.5% in constant prices. The overall operation of the national economy is in a reasonable range, the main goals and tasks of the development of the whole year of 2022 have been completed, new steps have been taken to build a new development pattern, and new results have been achieved in high-quality development.
From 2020 to 2022, China's manufacturing fixed asset investment maintained a high growth trend, and the investment in instrumentation manufacturing increased by 37.80% in 2022. According to the data of the National Bureau of Statistics, the growth of fixed asset investment in China's manufacturing industry fluctuated greatly from 2018 to 2022, maintaining a growth trend in the past two years, with a year-on-year increase of 13.50% in 2021 and 9.10% in 2022. Among them, the investment in instrumentation manufacturing industry and electrical machinery and equipment manufacturing industry maintained stable growth from 2020 to 2022, with investment in instrumentation manufacturing increasing by 37.80% and investment in electrical machinery and equipment manufacturing increasing by 42.60% in 2022.
In the first half of 2023, manufacturing investment grew rapidly, and investment in instrumentation manufacturing had an obvious driving effect. According to data from the National Bureau of Statistics, in the first half of 2023, manufacturing investment increased by 6.0% year-on-year, driving all fixed asset investment up by 1.4 percentage points. Among them, the investment in electrical machinery and equipment manufacturing increased by 38.9%, the investment in instrumentation manufacturing increased by 24.1%, the investment in general equipment manufacturing increased by 3.7%, and the investment in special equipment manufacturing increased by 6.4%.
2.2. In 2021, the revenue of the instrumentation industry will exceed 900 billion yuan, and the policy is favorable for domestic substitution
The company belongs to the engineering safety monitoring special sensor and instrumentation manufacturing industry, and also provides monitoring industry application services and Internet of Things services. The upstream of the instrumentation industry is mainly hardware suppliers, which include two categories, spare parts suppliers and purchased product suppliers. Spare parts suppliers mainly provide raw and auxiliary materials, parts, components for the production of monitoring sensors and equipment, including chips, cables and metal materials, and purchased product suppliers mainly provide customer needs to develop brands or specified functions of finished products to ensure the integrity of project requirements and the smooth execution of contracts. The downstream is mainly power and energy, land resources and environment, water conservancy, transportation and many other applications.
In recent years, the state has issued a number of policies conducive to the development of safety monitoring in various industries to accelerate the domestic replacement of scientific instruments. The introduction of favorable policies in various industries, the steady increase in market demand for safety monitoring products, the gradual expansion of the market space for safety monitoring products, the promotion of the development of sensors and intelligent instrumentation industry, and the acceleration of domestic substitution of scientific instruments, companies and related enterprises will benefit from it. The company needs to continuously strengthen technological innovation and ensure product quality to meet national policies and market demand.
According to the data of "2021 CCID Consulting Industrial Intelligent Sensor White Paper", driven by the continuous demand for intelligent and digital markets in the fields of automotive, industrial automation, medical treatment, environmental protection, and consumption, the global sensor market size has increased from $139.32 billion in 2018 to $170.91 billion in 2021, with a CAGR of 7.05%. Domestically, from 2014 to 2021, the size of China's sensor market increased from 98.26 billion yuan to 295.18 billion yuan, with a CAGR of 17.02%. The sensor industry has received increasing attention under the empowerment of the Internet, and the introduction of relevant support policies has made the sensor industry market optimistic.
With the continuous development of energy conservation and consumption reduction, low-carbon economy, private production industry, strategic emerging industries, and the country's increased attention to food safety and environmental protection, it has brought new opportunities for the mainland instrumentation industry. According to the forecast of China Business Industry Research Institute, the main business income of enterprises in the mainland instrumentation industry fell to 724.3 billion yuan in 2019 after a slight growth from 2016 to 2017, and showed a growth trend in 2019-2021, reaching 910.1 billion yuan in 2021.
In terms of profitability, the total profit of enterprises in the mainland instrumentation industry rose slightly in 2017 and then fell to 70 billion yuan in 2019, showing a growth trend from 2019 to 2021, reaching 95.7 billion yuan in 2021. On the whole, its growth rate is higher than the growth rate of main revenue, indicating that the profitability of the mainland instrumentation industry has been continuously improved and has entered a stage of high-quality development.
Safety monitoring sensor and intelligent instrumentation industry belongs to high-tech industry, technology-intensive industry, product research and development technology content is high, involving a wide range of disciplines, is electronic engineering, mechanical engineering, automation engineering, computer science, industrial design and other multidisciplinary interpenetration, mutual integration of high-tech fields, requiring enterprises must have the ability to master, integrate multi-field technology and form their own characteristic technical route, to ensure the advancement of products and technology. Over the years, the company through continuous technology development and experience accumulation, products continue to improve, the company's production of a series of products are widely used in many fields, in the industry has formed a good reputation and reputation.
3. Point 3: The downstream industry is growing steadily, and safety monitoring products are the "eyes and ears" of infrastructure construction
The company's downstream industries are mainly energy, water conservancy, transportation, smart city and geological disasters and other infrastructure construction industries, of which the company's downstream customers are mainly state-owned large and medium-sized enterprises, scientific research institutes, design institutes, construction bureaus, universities and system integrators in these fields. Safety monitoring products are the "eyes and ears" in the process of infrastructure construction and operation, as the carrier of Internet of Things service realization, whether it is smart water conservancy, intelligent transportation, smart energy, or land disaster warning, smart city and other major Internet of Things application systems, safety monitoring products play a pivotal role.
3.1. The energy, water conservancy and transportation industries are the pillars of the company's performance, accounting for 82% of revenue in 2021
Energy, water conservancy, transportation industry is the pillar of the company's performance, the company's products are mainly used in the field of engineering safety monitoring in these three industries, the average annual market space of the three sub-industries in the next five years is about 3.143 billion yuan, and the revenue of energy, water conservancy and transportation industry in 2021 is 213 million yuan, accounting for 82.20% of the company's revenue, and the total market share is 6.78%.
3.1.1. Energy industry: It is estimated that the average annual investment in power supply construction is 500 billion yuan, and the safety monitoring market capacity is 500 million yuan per year
During the "14th Five-Year Plan" period, the power transformation of the mainland's energy revolution will come to the forefront, and the power structure will gradually transform from traditional fossil fuel-based power to clean and low-carbon renewable energy electricity. According to the National Energy Administration and the "China Energy Big Data Report (2021) Power", since 2014, power grid investment has continued to grow, and in 2021, the national power supply infrastructure investment completed 553 billion yuan, a year-on-year increase of 5.45%, of which hydropower construction investment was 98.8 billion yuan.
According to the response to the second round of inquiries from Keycom Instruments, it is predicted that the average annual market capacity of safety monitoring products in the stock market of the energy industry is about 92 million yuan. At the same time, it is predicted that the incremental market of the energy industry, that is, the average annual market capacity of safety monitoring products in new projects in the national energy industry during the "14th Five-Year Plan" period will be about 368 million yuan. Overall, it is estimated that the average annual market capacity of safety monitoring products in the national energy industry during the "14th Five-Year Plan" period will be about 460 million yuan. In 2021, the company's energy industry operating income will be 72.94 million yuan, with a market share of about 15.86%, and there is still a lot of room for market expansion.
According to the data of the "China Energy Big Data Report (2021) Electric Power", from a total investment of 761.4 billion yuan in 2011 to a total investment of 994.3 billion yuan in 2020, the overall growth trend of mainland power investment has been in the past decade. The average annual investment during the "Twelfth Five-Year Plan" period is about 780 billion yuan, and the average annual investment during the "Thirteenth Five-Year Plan" period is about 880 billion yuan.
The company's energy industry is mainly based on the safety monitoring of conventional hydropower stations, wind power, nuclear power and other projects.
- Conventional hydroelectric power stations
Hydropower is a clean renewable energy with mature technology and large-scale development, and the mainland ranks first in the world in hydropower resources. Hydropower is an important form of mainland power source, up to now, mainland hydropower is already the world's leading in terms of construction scale, efficiency, achievements, planning, design, construction and equipment manufacturing level. According to Wind statistics, the cumulative hydropower generation capacity of the mainland will reach 1,202 billion kWh in 2022, a year-on-year increase of 1%.
- nuclear power
According to China's nuclear power grid, by the end of 2019, the mainland operated 47 nuclear power units, with a total installed capacity of 48.75 million kilowatts, ranking third in the world. At the same time, the cumulative investment in nuclear power projects in mainland China has continued to increase, reaching 67.7 billion yuan by 2022, a year-on-year increase of 25.84%.
The number of nuclear power plants under construction on the mainland accounts for more than 40% of the total number of nuclear power projects under construction in the world. According to the plan of the National Development and Reform Commission, there will be more than 70 nuclear power units in service in the mainland in 2020, accounting for more than 5% of the total installed power generation capacity, and this proportion will reach 10% in 2030, and the installed capacity will exceed 400 million kilowatts in 2050.
- Wind power
By the end of 2020, the cumulative installed capacity of wind power in China reached 281.53 million kilowatts, a cumulative increase of 34.6%, accounting for 12.79% of the total installed capacity of power generation in the country. Among them, the cumulative installed capacity of onshore wind power is 271 million kilowatts, and the cumulative installed capacity of offshore wind power is about 9 million kilowatts. In the "14th Five-Year Plan", it is required to ensure that the average annual installed capacity is more than 50 million kilowatts, and after 2025, the average annual installed capacity of China's wind power should not be less than 60 million kilowatts, at least 800 million kilowatts by 2030, and at least 3 billion kilowatts by 2060.
The company will further deepen the cooperative relationship with large and medium-sized state-owned enterprises such as PowerChina Group and China Energy Construction Group, and provide more professional and high-quality pre-sales and after-sales services for end customers, design units and safety monitoring contractors in the industry. The company will further maintain and expand conventional hydropower stations, wind power plants, nuclear power plants and other market segments, and pay close attention to the planning and construction of hydropower stations in the lower reaches of the Yarlung Zangbo River, the upper reaches of the Jinsha River, the middle and upper reaches of the Yalong River, and the upper reaches of the Yellow River; Seize the opportunity of pumped storage power station planning and construction, focus on expanding the pumped storage market segment, and promote the stable growth of business in the energy industry.
3.1.2. Water conservancy industry: It is expected that the average annual investment is 800 billion yuan, and the market capacity of safety monitoring products is 900 million yuan per year
According to data from the Ministry of Water Resources, from 2011 to 2021, the completion of water conservancy construction investment in the whole society in mainland China showed a fluctuating growth trend. In 2020 and 2021, the investment in water conservancy construction will be 769.5 billion yuan and 757.6 billion yuan respectively. The investment funds for mainland water conservancy construction are mainly used in flood control engineering, water resources engineering, soil and water conservation and ecological construction, water conservancy engineering, industry capacity building, preliminary work and other seven aspects. According to the current development trend, the average annual investment in water conservancy in the country will remain at a high level, and the investment and construction of the water conservancy engineering industry will continue to increase.
Wei Shanzhong, then vice minister of water resources, said at the 2022 water conservancy planning work symposium that efforts should be made to expand the scale of water conservancy investment and strive to exceed 800 billion yuan in water conservancy investment in 2022. According to the response to the second round of inquiries of Jikang Instruments, it is estimated that the average annual market capacity of safety monitoring products in the national water conservancy industry during the "14th Five-Year Plan" period will be about 900 million yuan. In 2021, the company's water conservancy industry operating income will be 109 million yuan, with a market share of about 12.11%, and there is still a lot of room for market expansion.
- National water network construction: The "Guiding Opinions on the Implementation of Major National Water Network Projects" and the "Implementation Plan for the Implementation of Major National Water Network Projects in the 14th Five-Year Plan Period" require that by 2025, a number of national water network backbone projects will be built, and the construction of provincial, municipal and county water networks will be implemented in an orderly manner; A number of major water diversion projects and key water source projects have been completed, with an additional water supply capacity of 29 billion cubic meters; 88% piped water penetration in rural areas; The backbone irrigation and drainage engineering system of large and medium-sized irrigation areas has been gradually improved, and the effective irrigation area has been added and restored to 15 million mu.
- Construction of rainwater monitoring and reporting facilities for small reservoirs and dam safety monitoring: The Notice of the General Office of the State Council on Effectively Strengthening the Reinforcement and Operation Management and Protection of Reservoirs (Guo Ban Fa [2021] No. 8) requires accelerating the construction of facilities such as rainwater monitoring and reporting of small reservoirs, and dam safety monitoring, improving the reservoir safety operation monitoring system, strengthening analysis and judgment, and timely issuing early warning information. Establish and improve a unified national mechanism for filling, reviewing, and updating reservoir management information, and realize dynamic management of information such as reservoir risk removal reinforcement and operation management.
- Smart water conservancy construction: The "Guiding Opinions on Vigorously Promoting Smart Water Conservancy Construction" and "Implementation Plan for Promoting Smart Water Conservancy Construction during the 14th Five-Year Plan" Period (Ministry of Water Resources Document < Water Information No. 2019 (220) >) require that by 2025, through the construction of digital twin river basins, "2+N" water conservancy intelligent business application systems, water conservancy network security systems, and smart water conservancy guarantee systems, intelligent transformation of water conservancy projects will be promoted, and seven major river digital twin basins will be built, and smart water conservancy system version 1.0 will be built.
The company's water conservancy industry projects mainly cover the safety monitoring engineering and equipment application of water conservancy hubs and reservoirs, water transmission and transfer projects, flash floods and urban flood control. The company will further deepen the cooperative relationship with state-owned enterprises and institutions such as the units under the Ministry of Water Resources, enterprises under PowerChina and provincial water conservancy design institutes and scientific research institutes, continue to follow up 150 major water conservancy projects and digital twin river basin construction projects, seize the opportunity of rainwater situation and dam safety monitoring system construction projects in small reservoirs across the country, and ensure the stable growth of business in the water conservancy industry. According to the Ministry of Water Resources, from January to August this year, the national investment in water conservancy construction was 985.6 billion yuan, 23,600 new water conservancy projects were started, and 736.1 billion yuan was completed in water conservancy construction, all of which set a record in the same period in history, and the company is expected to benefit.
3.1.3. Transportation industry: highway bridges and tunnels and high-speed rail bridges and tunnels will develop steadily, with a safety monitoring market capacity of 1.8 billion yuan per year
- Road bridges
From 2016 to 2022, the investment amount of national highway fixed assets basically showed a year-by-year growth trend, with an average annual growth rate of 8%, of which the highest growth rate in 2017 reached 18.2%, and the national highway fixed asset investment reached 2.85 trillion yuan in 2022. The country's total highway investment accounted for the largest proportion, showing an overall growth trend, reaching the highest in 2021; From 2016 to 2022, the total investment in national and provincial highways and rural roads fluctuated to a certain extent, and the investment growth rate also showed certain fluctuations.
From 2014 to 2021, the investment in mainland roads and bridges fluctuated greatly, and the overall trend showed fluctuation growth. In 2014, the investment amount of roads and bridges reached 763.49 billion yuan, and the investment amount in 2018 reached a record low (692.24 billion yuan), and then the investment amount in 2019 increased rapidly, an increase of 10.6% compared with 2018, the investment amount returned to more than 760 billion yuan, and the investment in fixed assets of roads and bridges in 2021 was 864.45 billion yuan, a year-on-year increase of 10.62%, a new high since 2014.
According to data from the Statistical Bulletin on the Development of the Transportation Industry, by the end of 2021, there were 7,417 special bridges and 134,500 bridges among the highway bridges in the mainland. According to the response to the second round of inquiries from Keykang Instruments, it is estimated that the average annual stock of highway and bridge safety monitoring products in mainland China will be about 447 million yuan in the next five years.
According to the response to the second round of inquiries from Jikang Instruments, it is estimated that the average annual increase in the safety monitoring equipment of highways and bridges in mainland China in the next five years will be about 206 million yuan. Overall, it is estimated that in the next five years, the average annual market capacity of mainland highway and bridge safety monitoring products will be about 653 million yuan.
- Road tunnels
Mainland investment in highway construction is on the rise. The annual investment scale of fixed assets in highway transportation in the mainland has stabilized at more than 2 trillion yuan after 2017, and the investment in highway transportation in 2021 will be 2.6 trillion yuan, a year-on-year increase of 6.92%.
According to the Statistical Bulletin on the Development of the Transportation Industry, by the end of 2021, there were 1,599 extra-long tunnels and 6,211 long tunnels in mainland highway tunnels. Up to now, most of the highway special tunnels and long tunnels have not been equipped with tunnel structure safety monitoring systems, according to the information disclosed in the second round of inquiries of Jikang Instruments, it is expected that the average annual stock of highway tunnel safety monitoring products in mainland China in the next five years will be about 211 million yuan.
It is estimated that the average annual increase in the safety monitoring products of mainland highway tunnels in the next five years will be about 119 million yuan. Overall, it is estimated that in the next five years, the average annual market capacity of mainland road tunnel safety monitoring products will be about 330 million yuan.
- High-speed railway bridges, tunnels
The mainland's investment in railway construction has remained at a high level all year round. Since 2010, the amount of investment in railway construction has grown rapidly, and has stabilized at about 800 billion yuan since 2016. In 2021, the national railway completed fixed asset investment of 748.9 billion yuan, a year-on-year decrease of 4.22%.
China Railway Group said that combined with the arrangement of projects under construction and proposed projects, it is expected that the total scale of national railway fixed asset investment in the "14th Five-Year Plan" will be similar to the overall scale of the "13th Five-Year Plan", and continue to maintain a stable trend. According to the planning plan, it is expected that by the end of 2025, the operating mileage of the national railway will reach about 165,000 kilometers, of which about 50,000 kilometers of high-speed railway (including some intercity railways), covering more than 95% of cities with a population of more than 500,000.
According to the Statistical Bulletin on the Development of the Transportation Industry, by the end of 2021, the operating mileage of high-speed rail in mainland China was 40,000 kilometers. According to the response to the second round of inquiries from Jikang Instruments, it is estimated that the average annual market size of safety monitoring equipment for bridges and tunnels of high-speed railway in mainland China will be about 512 million yuan in the next five years.
The average annual increase of high-speed railway in the next five years is predicted to be 3,600 kilometers in the past five years, and the average annual increase in safety monitoring equipment for bridges and tunnels of mainland high-speed railway in the next five years will be about 288 million yuan. It is estimated that in the next five years, the average annual market capacity of safety monitoring products of high-speed railway bridges and tunnels in mainland China will be about 800 million yuan.
In summary, it is estimated that in the next five years, the average annual market capacity of safety monitoring products in the national transportation industry will be about 1.783 billion yuan. In 2021, the company's transportation industry operating income will be 31.06 million yuan, with a market share of about 1.74%, and there will be greater market expansion space in the future.
The company's products are mainly concentrated in the field of safety monitoring of infrastructure projects of roads, railways, urban railways, bridges, tunnels and airports and ports. The company will closely track backbone channel projects such as Sichuan-Tibet Railway and Cross-river Bridge, as well as major transportation infrastructure construction projects such as high-speed rail, airports, ports and terminals, focus on the implementation of the construction and implementation of the structural health monitoring system of national highways and bridges, launch more intelligent monitoring terminal products that adapt to the characteristics of the industry, and accelerate the improvement of the industry product line.
3.2. The growing demand for smart cities and geological hazard industries is favorable to the engineering safety monitoring market
3.2.1. Smart city: The market size will be 18.7 trillion yuan in 2021, and the demand for engineering safety testing will increase
According to research by Research and Intelligence Consulting, the continuous implementation of "smart city" and government cloud construction has brought more demand for professional urban security operation services. In 2018, the IT investment scale of smart cities in mainland China reached 480 billion yuan, and the market size has reached nearly 8 trillion yuan, and will maintain a compound annual growth of 33.38% in the next five years. By 2021, the mainland smart city market will reach 18.7 trillion yuan.
Smart city covers all aspects of urban public facilities, the company's monitoring products are mainly used in the public infrastructure safety monitoring part of smart city, involving engineering project types including urban bridges, urban rail transit and urban underground comprehensive pipe corridors.
3.2.2. Geological disasters: There were 4,772 geological disasters in 2021, and 11.1 billion yuan will be invested in monitoring and early warning funds from 2018 to 2020
According to the statistics of Zhiyan Consulting, 4,772 geological disasters occurred in 2021. At the same time, the "Three-Year Action Plan for Monitoring and Early Warning of Geological Disasters to Improve Scientific and Technological Support Capacity (2018~2020)" pointed out that from 2011 to 2017, a total of 81,353 address disasters occurred in the country, of which three types of sudden geological disasters such as collapses, landslides and debris flows accounted for 97% of the total disasters, resulting in 2,765 deaths or disappearances. The plan specifies that 11.05 billion yuan will be invested in on-site monitoring and early warning of geological disasters, regional geological disaster monitoring and early warning, 950 million yuan in the construction of information platforms, and 28 billion yuan in engineering governance and relocation avoidance, with a total of about 40 billion yuan in three years.
The 14th Five-Year Plan for the National Emergency Response System proposes to make full use of technologies such as the Internet of Things, industrial Internet, remote sensing, video recognition, and fifth-generation mobile communication (5G) to improve disaster monitoring and perception capabilities, optimize the layout of natural disaster monitoring station networks, and build a disaster accident monitoring and early warning network that integrates air, space, ground and sea. The application of geological hazard industry involved in the company mainly includes the field of safety monitoring of geological hazards, groundwater and mine geology, and the business form is mainly based on the overall solution projects contracted, focusing on the field of geological hazard monitoring in Guizhou.
4. Point 4: The scale of the company is at a medium level, and the gross profit margin is better than that of comparable companies
The series of products independently developed by the company are widely used in many key projects at home and abroad, forming a good reputation and influence in the industry, and intelligent monitoring terminal products have strong market competitiveness. Comparable companies in the same industry include Science and Engineering Optics Technology, Donghua Test, Golden Code Measurement and Control, and Hanwei Technology.
- Product aspect
Science and Engineering Optics mainly provides oil tank fire/tunnel fire alarm system, intelligent pipe gallery and intelligent monitoring system, perimeter intrusion alarm system and other products. Donghua test products mainly include sensors, test instruments and control analysis software. Golden Code Measurement and Control mainly provides intelligent precision sensors, automatic data acquisition systems, portable intelligent monitoring instruments and accessories. Hanwei Technology integrates the R&D, production and sales of sensors, covering gas, pressure, flow, temperature and other categories, providing comprehensive solutions for the Internet of Things and covering home intelligence and health industries.
- On the customer side
The main customer groups of Science and Engineering Optics are petroleum and petrochemical, traffic tunnels, large real estate enterprises, enterprise groups, government departments, etc. Donghua Testing's main customers are national defense and aerospace, professional scientific research and testing institutions, universities, equipment manufacturing industry, equipment condition monitoring industry, etc. The main customers of Golden Code Measurement and Control are universities, research institutes, design institutes, engineering companies, etc. The main customers of Hanwei Technology are gas, water supply, heat, urban management, industrial safety, environmental protection and other industry customers, and the customer group is relatively rich.
- Business model and segmentation
Science and engineering optics are mainly based on direct sales, and the product application is deeply deployed in the application fields of new smart city fire protection, security and so on. Donghua testing is mainly based on direct sales, direct sales and consignment sales are combined, and the product application fields are: aerospace, professional scientific research institutes, testing institutions, equipment manufacturing industry, etc. Jinma measurement and control adopts direct sales mode, and the main application fields of products are highways, railways, rail transit, bridges, water conservancy dams and other engineering fields. Hanwei Technology is also based on direct sales and has a wide range of applications. Jikang Instruments adopts direct sales mode to obtain orders, products and services are mainly used in the field of engineering safety monitoring, and the end customers are mainly large and medium-sized state-owned enterprises, design institutes, scientific research institutes, construction bureaus, universities, system integrators, etc. in the fields of energy, water conservancy, transportation construction, smart cities and geological disasters. On the whole, the business scope of Jinma Measurement and Control is closer to the company.
Hanwei Technology has the largest revenue, reaching 2.395 billion yuan in 2022, and Jikang Instruments' revenue in 2022 is 299 million yuan, which is closer to that of Science and Engineering Optics (545 million yuan) and Donghua Test (367 million yuan).
In 2022, the gross profit margin of Keikang Instruments will be 50.79%, which is at the medium level of comparable companies; Donghua Test has the highest gross profit margin, with a gross profit margin of 67.54% in 2022; The gross profit margins of Science and Engineering Optics and Hanwei Technology are relatively low, 30.26% and 28.37% respectively. In 2022, the net profit margin of Keikang Instruments will be 20.26%, which is at the medium level of comparable companies.
In 2022, the sales expense rate of Jikang Instrument will be 10.02% and the management expense rate will be 16.00%, and the sales expense rate and management expense rate of Jikang Instrument will be at the middle level in the industry. Donghua Test had the highest sales expense ratio and management expense ratio, 11.38% and 20.84% respectively.
5. Profit forecast and investment advice
The main business of Kekang Instruments is the research and development, production and sales of intelligent monitoring terminals (precision sensors, intelligent data acquisition equipment), and at the same time provides safety monitoring Internet of Things solutions and services, with high technical barriers and added value. At present, the company has gradually realized domestic replacement of foreign vibrating string sensors, fiber grating sensors and other instruments. The company mainly provides convenient, reliable, professional and intelligent digital services in the field of engineering safety monitoring for customers in the energy, water conservancy, transportation, smart city and geological disaster industries, and has a basic basis for the steady growth of the downstream industry.
We expect the company's net profit attributable to the parent in 2023-2025 to be 0.72/0.86/100 million yuan, corresponding to EPS of 0.52/0.61/0.72 yuan per share, corresponding to the current stock price PE of 13.9/11.7/10.0 times, respectively.
6. Risk warning
The risk of slowing down the growth rate of infrastructure construction investment and the risk of bad debt loss of accounts receivable
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