LONGRUAN TECHNOLOGIES(688078)：ROBUST GROWTH IN BOTH REVENUE AND PROFIT WITH A SUSTAINED BOOM IN SMART COAL MINES

　　Longruan Technologies announced its 1H23 results. The Company achieved revenue of Rmb139mn in 1H23, up 20.82% YoY, and attributable net profit （ANP） of Rmb38.146mn, up 33.53% YoY. Benefiting from the vigorous promotion of national policies and the strong drive of technologies such as AI and big data, the smart coal mining industry has maintained high prosperity. We are optimistic about the technical strength of the Company in the field of smart coal mine industrial software and the industry know-how brought by the deep presence buildup in this sector. We believe that the relevant advantages are likely to allow Longruan Technologies to obtain more potential orders amid the sustainable development of the industry. We maintain our EPS forecasts for 2023E-2025E at Rmb1.57/2.18/2.75 and a target price of Rmb58, and reiterate the "BUY" rating.
　　 Comment: The Company posted growth in both revenue and profit, and continuously invested in R&D.
　　Longruan Technologies achieved revenue of Rmb139mn in 1H23, up 20.82% YoY, mainly benefiting from the promotion of national policies for smart mine construction. It obtained market orders backed by its technical strength and project experience, and posted gross profit margin （GPM） of 57.7%, up 3.2ppts YoY. Its selling/administrative/R&D expense ratios were 6.13%/8.22%/15.44% respectively （-0.97ppts/-0.20ppts/-1.05ppts YoY）， with R&D expense ratio remaining at a high level. The Company posted ANP of Rmb38.146mn, up 33.53% YoY, and ex-one-off ANP of Rmb37.386mn, up 30.53% YoY. Longruan Technologies posted steady growth in both revenue and profit, and its continuous R&D investment is conducive to consolidating the competitive advantage of products.
　　 Keep up with industry policy guidance and empower the development of smart coal mines.
　　In recent years, China has intensively issued relevant policies in the field of smart mining to promote the digital transformation of the coal industry. In Feb 2023, the National Development and Reform Commission （NDRC） and other three ministries and commissions jointly issued measures to continue to support the management of major disasters in coal mines. The Company focuses on national policies, increases investment in R&D, and empowers the development of smart coal mines. According to its announcement, the Company's customers have covered 44 of China's top 50 coal enterprises in 2021, and more than 1,800 mines in the industry have adopted software system of the Company. The successful application of the Company's products has paved the way for the accelerated development of smart mines, and the Company is likely to fully benefit from the ongoing advancement of industry policies going forward.
　　 The Company has built a preemptive presence in technologies, leading to a continuous increase in orders.
　　Based on the LongRuan Geographical Information System （GIS） platform, which has independent intellectual property rights, Longruan Technologies　　expands and covers application scenarios such as desktop, service, web, mobile, and cloud, and has preemptively built a presence in AI, big data and other technologies to create intelligent scheduling systems, coal mine AI image intelligent recognition and analysis systems and other products. The forward-looking presence buildup in technologies allows the Company’s products to further consolidate their technical advantages and strengthen their business development and order attaining capabilities. According to its announcement, the Company obtained Rmb258mn of new orders in 1H23, continuing to consolidate its fundamentals and laying the foundation for subsequent business development.
　　 Potential risks:
　　A decline in revenue due to lower-than-expected capex; a decline in GPM due to increased market competition; the development of smart mines missing expectations; technological innovation failing expectations; the progress of project construction falling short of expectations; nonperforming loans of accounts receivable; the implementation and promotion of policies not up to expectations; disappointing development of the smart city project, etc.
　　 Investment recommendation:
　　We believe that the domestic smart coal mining industry is likely to maintain good prosperity under the dual catalysis of actual demand and active policy promotion. Longruan Technologies has technical advantages in the GIS field and project experience in smart coal mines, allowing it to fully benefit from industry development going forward. We maintain our EPS forecasts of Rmb1.57/2.18/2.75 for 2023E/24E/25E, corresponding to 29x/21x/16x PE at the current share price. We select Bestway Intelligent Control （301195.SZ）， Mas Sci & Tech （300275.SZ） and SuperMap Software （300036.SZ） as comparable companies. Among them, the valuation of Mas Sci & Tech is based on Wind consensus estimates, while the valuations of the other two are based on CITICS Research forecasts. With the average comps valuation of 33x 2023E PE as a reference, considering Longruan Technologies’ deep presence in smart coal mines and its sound earnings growth, we assign 38x 2023E PE and maintain a target price of Rmb58. We reiterate "BUY".
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。