As a smart coal pioneer and a leader across various verticals, Mas Sci & Tech focuses on promoting coal informatization and serves coal miners and other enterprise customers, with its business covering intelligent safety monitoring, transmission and communication networks, intelligent geological support, etc. In recent years, China has intensively introduced policies related to smart mines to encourage the construction of digital and intelligent mines. Coupled with the rigid demand of downstream customers for safe production, the smart mining industry has ushered in a stage of rapid development. We are optimistic about Mas Sci & Tech, which has an in-depth presence in this field and has built competitive barriers on the back of its first-mover advantage in technology and rich project experience. We expect it to benefit from the development of the industry. We forecast 2023E-2025E EPS of Rmb0.23/0.33/0.44.

A leader in smart mines with a track record of 20 years.

With its core "Internet of Things (IoT)+" technology, Mas Sci & Tech, a leader in coal informatization, can empower scenarios like the digital transformation of open-pit coal mines, metal and non-metal mines, and others, and its core products include intelligent safety monitoring, transmission & communication networks, intelligent address assurance, and other systems. At present, the Company focuses on smart mines and has also expanded in the direction of environmental protection and urban management, aiming to become a provider of integrated IoT solutions and operations & maintenance (O&M) services. In 2020/2021/2022/1-3Q23, Mas Sci & Tech delivered revenue of Rmb285mn/309mn/376mn/296mn (+5.2%/8.4%/21.7%/25.78% YoY) and net profit of Rmb26.07mn/28.63mn/36.99mn/35.48mn (+14.7%/9.8%/29.2%/46.6% YoY).

As state policies promote smart mines, the industry is set to take off.

China's energy resources show a pattern of rich coal resources but a lack of oil and gas resources, determining that China's energy consumption structure is dominated by coal. According to the National Bureau of Statistics, China's total coal output reached 4.56bt in 2022, and the total consumption reached 5.41bt, with coal production and consumption showing an upward trend. China vigorously promotes smart mines, and the "Guiding Opinions on the High-quality Development of the Coal Industry in the 14th Five-Year Plan Period" issued by the China National Coal Association mentioned that by the end of the 14th Five-Year Plan period (2021-25), the number of coal mines in the country will fall below 4,000, and the output of large-scale coal mines will account for more than 85%, more than 1,000 intelligent mining faces in coal mines will be built, and the penetration rate of coal mine shearers will be about 90%. With significant industrial policy support and clear goals, we believe the smart mine industry will see accelerated growth and usher in development opportunities. Based on the policy requirements for coal mine transformation, the cost of transformation per mine, and the value of software and hardware systems as a percentage of the total, we predict that software and hardware equipment worth tens of billions of yuan will be required for coal mine transformation in China in the next three years.

An in-depth presence in coal informatization + active expansion.

With coal informatization as the cornerstone, Mas Sci & Tech has continued to carry out technology exploration and commercialization and has established a wide range of ecosystem-based cooperation networks through organic growth and endogenous extension. According to the Company's announcements: 1) The Company promoted technology localization, completed the localization adaptation certification of its "Xiao'an Yilian" industrial internet operating system, and completed relevant adaptation and optimization for domestic central processing units (CPUs), such as Kunpeng, Feiteng, Loongson, and HiSilicon Kirin. 2) The Company has established extensive cooperative relations, including seeking strategic cooperation with Huawei by joining the Huawei Solution Partner Program as an independent software vendor (ISV) and jointly launching integrated coal mine data intelligence system solutions with Alibaba Cloud. 3) It has ventured into satellite internet, with its subsidiary allowed to carry out multiple businesses nationwide, including the domestic very small aperture terminal (VSAT) earth station communication business, the content distribution network business, and the internet access service business. The Company has built competitive barriers through technology R&D, project practice and ecosystem-based cooperation.

Potential risks: Lower-than-expected downstream customer capex leading to a decline in operating revenue; a decline in gross profit margin due to intensified market competition; the development of smart mines missing expectations; technological innovation not up to expectations; the Company's project construction progress falling below expectations; bad debts associated with the Company's accounts receivable; the introduction and promotion of policies falling short of expectations; disappointing expansion into new fields, such as satellite internet.

Investment recommendation: We believe that benefiting from the vigorous promotion of national policies and the demand of downstream customers, the mine informatization segment may usher in a stage of rapid development. As a pioneer of coal informatization, Mas Sci & Tech may continue to benefit from the development of the industry.

We forecast 2023E/2024E/2025E EPS of Rmb0.23/0.33/0.44, implying 57x/40x/30x PE at the current price. As the Company's investment activities are subject to great uncertainty, we suggest tracking how the progress of its expansion into new fields, such as satellite internet, will impact its operations.