Suda shares intends to expand into more service areas, with room for mid- to long-term growth

Due to historical reasons, the aftermarket service of my country’s coal machinery industry has undergone a transformation from a planned economy to a market-oriented economy. As a leader in the industrial machinery service industry with a professional service team, a mature market layout, and a scientific management system, Suda Co., Ltd. (001277) faces a market space of 30 billion yuan to be developed.

Although the main business is still centered around coal machinery, Li Xiyuan, chairman of Zhengzhou Suda Industrial Machinery Service Co., Ltd., said that on the one hand, the professional service model that the company has explored can help the company achieve stable performance growth. On the other hand, the company has started to explore and layout more machinery aftermarket services other than coal machinery, striving to replicate mature models to more fields and seek greater market space.

Innovative model opens up growth space

Suda Co., Ltd. plans to raise 606 million yuan through IPO, of which 355 million yuan will be used for the Zhengzhou Aviation Port Area Suda Industrial Machinery Service Co., Ltd. Aviation Port Area Coal Machinery Remanufacturing and Aftermarket Service Construction Project, and 92.2466 million yuan will be used for Zhengzhou Suda Ordos Coal Machinery Remanufacturing and Aftermarket Service Construction Project to further expand the breadth and depth of the service market. 65.7858 million yuan was used for the construction of the R&D center and office building of Zhengzhou Aviation Port Area Suda Industrial Machinery Service Co., Ltd.

In addition to achieving performance growth through scale expansion, Suda Co., Ltd. has also explored a full life cycle service model that adapts to market demand through innovative service models in recent years.

“According to the traditional maintenance service thinking, we often provide services after the machinery breaks down. But in fact, if the service can be pre-placed and the machinery is maintained regularly, then major repairs can be reduced or even unnecessary, saving customers the cost of maintenance and saving maintenance time.” In Li Xiyuan’s view, the service life of a hydraulic support is usually 8-10 years, and it generally requires daily maintenance and inspection, 3-4 repairs and 2-3 major repairs during the service life. The professional services provided by Suda Co., Ltd. can reduce the frequency of major repairs from 2-3 times in 10 years to 1-2 times, or even no maintenance, through active preventive maintenance of the machinery throughout its life cycle.

“Based on the maintenance service experience accumulated over the years and the rapid response service system throughout the country, Suda shares can now detect the condition of machinery in a timely manner, perform routine maintenance and replacement of wearing parts, and greatly reduce the demand for equipment maintenance. If one major overhaul requires four months of downtime, and the machinery is overhauled three times within ten years, Suda shares can increase the machine’s operating rate by up to 10% by saving maintenance time. Customers will also calculate the service fee to Suda shares based on the actual monthly coal output and coal mining volume of the coal machine being served, so that the production benefits of both parties are linked.” Li Xiyuan said.

At present, Suda shares’ service model of helping customers reduce equipment management personnel, eliminate inventory capital occupation and stagnant inventory backlogs, improve equipment operation stability and reduce the comprehensive use cost during the entire life cycle has gradually been recognized by the market.

The prospectus disclosed that since 2013, Suda shares have begun to provide professional services to Shenhua Branch, and signed three professional service contracts for Shigetai, Buertai and Bulianta in 2013, 2014 and 2017 respectively. As of the end of 2023, the Bulutai specialized project has been completed, and the remaining service life of the Shigetai specialized project and the Bulianta specialized project is 1.7 years and 3.2 years respectively. In addition, since 2021, Suda Co., Ltd. has also signed new specialized business contracts with Qinglongsi Coal Mine Branch of Yulin Shenhua Energy Co., Ltd. and Guojiawan Coal Mine Branch of Guoneng Yulin Energy Co., Ltd. In March 2023, the company independently won the bid for the new 5 working face specialized service projects of Shenhua Branch. Except for 1 working face with a service period of 4 years, the service period of the other 4 working faces is 5 years.

“The service characteristics of specialized services determine that its customer stickiness is relatively high, and more than 70% of customers have a cooperation period of more than 5 years.” Li Xiyuan believes that under the general trend of separation of main and auxiliary coal enterprises, specialized services are an important trend in the future coal machine aftermarket services, which can solve customer needs at a deeper level and further improve the penetration rate of the aftermarket service industry. It is also an important service model for the company to open up market space in the future.

Downstream weakness may bring more opportunities

As an upstream service provider in the coal industry, Suda’s production and operation are undoubtedly highly correlated with the fluctuations in the prosperity of the coal industry.

Since 2013, affected by the overcapacity of coal production, my country’s coal production and prices have continued to fall, and coal production fell to 3.41 billion tons in 2016. In order to improve the supply and demand pattern and curb the decline in coal prices, the state and local governments have introduced a series of coal industry capacity reduction policies since 2016 to eliminate excess and backward production capacity. However, with the advancement of the structural reform of the coal supply side, the supply and demand balance of the coal industry has been effectively improved, and coal prices have gradually risen. In addition to the cyclical fluctuations in market prices, guidance at the policy level may have a more far-reaching impact on the coal industry.

“The proposal of the goal of ‘carbon peak and carbon neutrality’ will guide the structural changes in the coal industry and will also promote the transformation of traditional coal enterprises towards high-tech in terms of technology.” At present, under the influence of the general trend of energy conservation and emission reduction, the coal industry is generally regarded by the market as a sunset industry. However, in Li Xiyuan’s view, when the coal industry is in a downturn, Suda shares have greater development potential.

He mentioned that according to major industrial policies and energy demand, my country’s total coal output is expected to reach 5.5 billion tons in 2030, while last year’s total coal output was 4.71 billion tons. Overall, my country’s coal industry will experience a short-term slow growth, and then show a slow downward trend after 2030. In addition, my country’s coal mining has gradually shifted from the central and eastern regions to the western regions. The western region is rich in resources and the mining difficulty is relatively smaller. Although the coal mined in the west needs to solve the problem of transporting coal from the west to the east, the country has also been solving this bottleneck in recent years, and the ultra-high voltage west-to-east power transmission network has been built.

Against this background, the production capacity in the coal industry with small scale, high mining difficulty, and prominent gas and water problems will be gradually eliminated. In the future, the general trend of the development of the energy industry will be centered on large state-owned integrated energy groups, increase industry concentration, eliminate backward production capacity, and promote the establishment and maturity of coal price suppression mechanisms. In addition, in order to achieve the goal of efficient, green and clean production, driven by national policies, coal companies will increasingly adopt clean coal technologies such as clean processing, efficient and clean combustion, and intelligent comprehensive mining technology that is unmanned and harmless underground. Therefore, under the background of the coal industry facing survival pressure, mining and production will also gradually popularize the specialized division of labor and cooperation model, which will quickly open up market space for companies such as Suda Co., Ltd. that provide professional machinery maintenance services.

Expand more fields and more possibilities

There are many competitive entities in my country’s coal mine machinery aftermarket service industry, but they all have the characteristics of small scale, narrow service area, and single variety. In addition to Suda Co., Ltd., there are very few aftermarket comprehensive service providers that can provide full categories.

However, Suda Co., Ltd. is still seeking more possibilities in more markets. In the process of many years of downstream market services, Suda Co., Ltd. has paid attention to the opportunities of second-hand equipment leasing and trading.

“It is a very common phenomenon that coal mine machinery and equipment are idle in my country, but the second-hand coal mine equipment rental and sales business is still in its infancy.” Li Xiyuan said that according to data released by the National Bureau of Statistics, in the ten years from 2013 to 2022, the total fixed asset investment in my country’s coal mining and washing industry exceeded 3.8 trillion yuan, and the total investment in coal mine machinery and equipment accounted for about 20% of the total fixed asset investment in coal mining and washing. It can be seen that the stock market of coal mine machinery and equipment is huge, and the demand for laser cladding equipment for professional repair of coal machine hydraulic columns and picks will also be very strong.

According to the prospectus, Suda’s second-hand equipment rental and sales business mainly provides customers with second-hand coal mine machinery and equipment sales, leasing and other services. For this purpose, the company has built a professional second-hand equipment allocation platform “Easy Equipment”, which efficiently activates idle assets through the combination of online platforms and offline services. Suda’s maintenance and remanufacturing business, spare parts supply management business and experienced professional teams are the basis of second-hand equipment rental and sales business.

While expanding its business types, Suda is also expanding its business areas.

Although Suda shares currently mainly conduct business around hydraulic supports for coal comprehensive mining equipment, relying on years of experience in serving hydraulic supports, Suda shares also plans to expand the categories of service machinery and equipment, including coal mining machines, tunneling machines and scraper conveyors in the service scope, and has already carried out the maintenance and remanufacturing business of the “three machines”.

In addition to the field of coal comprehensive mining equipment, Suda shares also plans to make the field of engineering machinery equipment one of the key points of the next business expansion.

“The aftermarket space for engineering machinery in my country is larger than that for coal comprehensive mining equipment. The market is still in its infancy and has not yet formed a stable market structure. The company is actively developing the aftermarket service business for engineering machinery equipment with shield machines and tunneling machines as the entry point.” Li Xiyuan said. (cis)