Sales keep growing and profitability continues to improve: the company's total revenue in 2021 was about 5.745 billion yuan, an increase of 10% over the same period last year. The revenue of the four core businesses was 4.718 billion yuan, an increase of 13.1% over the same period last year. The consolidated gross profit margin increased by 1.2 percentage points to 24.5%.

The profit attributable to the owner of the parent company is 664 million yuan, an increase of about 23.7% over the same period last year; the profit per share is 0.244 yuan, and the profitability continues to improve. From a sub-sector point of view, die steel sales fell 9.3% year-on-year, business income increased 1.7% to 2.392 billion yuan, the epidemic in Europe, the United States and North America recovered, and the recovery of overall overseas demand led to die steel export volume and export revenue. The increase in costs brought about by the cancellation of the export tax rebate caused the gross profit margin to fall by 1.5 percentage points to 26.6%. The sales volume of the high-speed steel business increased by 6%, and the turnover increased by 29.6% to 1 billion yuan. Affected by the recovery in demand and the increase in the proportion of high-alloy products, the gross profit margin of the high-speed steel business increased by 4.4 percentage points to 32.5%. Revenue from the cutting tool business increased by 20.9% to 1.06 billion yuan, sales increased by 7.4%, and gross profit margin increased by 9.5% to 28.4%, mainly due to the increase in average selling prices driven by the transformation of the product structure of cutting tools to the middle and high end. In 2021, the company's titanium alloy business increased significantly, with an annual turnover of 54.4% to 263 million yuan. The company's continuous development in the civilian market led to a 50.5% increase in sales and a 2.2% drop in gross profit margin to 16%. This is mainly due to the sharp increase in costs caused by the sharp rise in the price of titanium sponge.

Powder metallurgy maintains rapid growth: the company's powder metallurgy business has achieved substantial growth in 2021. Powder performance achieved operating income of 60.35 million yuan; sales volume of 471 tons, an increase of 467.5% over the same period last year; gross profit margin of 51.1%. The future sales plan announced by the company has maintained a considerable increase in powder metallurgy products, with a planned sales of 2000 tons in 2022 and 5000 tons in 2023. At the same time, the second phase of the company's powder metallurgy project is also progressing as planned and is expected to be completed in the fourth quarter, when the company will achieve a powder metallurgy capacity of 5000 tons. We believe that with the improvement of the requirements of efficient cutting and CNC tools, the application proportion of powder metallurgy products will show a significant growth trend. We are optimistic that in the future, the company's powder metallurgy business will maintain rapid growth, market share will gradually increase, and profitability will be continuously optimized.

Target price of HK $4.08, buy rating: we adjust our annual revenue forecast for 22-23-24 to RMB 6.964 billion / 7.732 billion / 8.603 billion, respectively, and adjust our forecast of net profit to RMB 778 million / 937 million / 1.126 billion, giving the target price for the next 12 months HK $4.08, corresponding to 12 times PE in 2022, maintaining the buy rating.