Incident: The company released its report for the third quarter of 2022, which achieved operating income of 519 million yuan during the period, an increase of 72.8% over the previous year; achieved net profit of 320 million yuan, an increase of 120.84% over the previous year; and achieved net profit of 296 million yuan after deducting non-return mother's net profit, an increase of 118.49% over the previous year.

Q3 Revenue reached a record high, and gross margin recovered. During the period, the company achieved operating income of 519 million yuan, an increase of 72.8% over the previous year; achieved net profit of 320 million yuan, an increase of 120.84% over the previous year; and achieved net profit of 296 million yuan after deduction of the mother, an increase of 118.49% over the previous year. Among them, Q3 achieved operating income of 202 million yuan, an increase of 105.55% over the previous year, an increase of 43.56% over the previous year, and the net profit of the mother was 136 million yuan, an increase of 165.06% over the previous year, an increase of 44.36% over the previous month, after deducting the net profit of the non-return mother of 124 million yuan, an increase of 149.01% over the previous year, an increase of 46.84% over the previous year. The gross profit margin for the period was 74.28%, up 2.4% from the interim report. Among them, the Q3 quarterly gross profit margin was 77.97%, the highest level in the past four quarters. In terms of period expenses, the company incurred sales expenses during the period (3,9221,700 yuan, +69.58%); management expenses (199402 million yuan, -62,84%); financial expenses (-9.472 million yuan, -849,900 yuan in the same period last year). The main reasons were an increase in bank term deposits, which led to an increase in interest income; and a decrease in borrowings, which led to a decrease in interest expenses.

The cost rate during sales was 7.61% compared to 27.33% in the same period last year. The company's R&D expenses (25.1449 million yuan, -6.91%). The company currently has plenty of orders in hand and is in a state of “rapid production and full sales”. Performance is mainly determined by the company's delivery capacity. With the stable operation of the kiloton line and the release of production capacity, the company's revenue and profitability continue to increase.

The company issued a draft equity incentive plan to unlock the conditions corresponding to the high growth rate of performance. The incentive plan plans to grant 1,091,800 restricted shares to 13 incentive recipients in two batches, accounting for 0.25% of the company's total share capital at the time of the announcement of this incentive plan. The grant price is 23.36 yuan/share. Among them, 873,400 restricted shares were granted for the first time (0.20% of the total share capital), accounting for 80% of the total number of restricted shares to be granted under this incentive plan; 218,400 reserved restricted shares (0.05% of the total share capital) were reserved, accounting for 20% of the total number of restricted shares to be granted under this incentive plan. This incentive plan motivates a total of 13 people, including the company's senior management, middle management and business executives. This incentive plan is valid for 5 years, and the initial grant portion includes a one-year sales limit and a four-year vesting period. Judging from the target value of the assessment conditions of this incentive plan, the company's net profit for 22-25 needs to reach 4.32/7.04/905/1,146 million yuan, and the revenue growth rate for each year must reach 70.0%/105.9%/14.3%/20.0% or more (compound annualized growth rate is 48.0%), or the net profit growth rate reaches 115.0%/62.8%/28.6%/26.7% or more (annualized compound growth rate is 54.5%), respectively, so that the incentive target can obtain all restricted stocks granted for the first time. On the one hand, it shows that the company has sufficient confidence in the prospects for business development. On the other hand, it can also fully mobilize the work enthusiasm of the company's senior managers and core key talents, effectively combine shareholders' interests, company interests and personal interests of operators, and promote a steady and rapid improvement in the company's operating performance. The expenses to be confirmed for the first award of this incentive are estimated at 18.9609 million yuan, and 75.40, 454.39, 467.44, 485.09, and 4.1377 million yuan will be amortized respectively from 2022 to 2026.

High-end carbon fiber market demand was determined, and construction of the third phase of the project was actively promoted. Carbon fiber and its composite materials are strategic emerging materials supporting current socio-economic development and safeguarding national security. They have excellent properties such as high strength, light weight, and high temperature resistance. They have important and wide applications in aerospace and navigation, wind power generation, new energy, etc., and production capacity is expanding rapidly across the country. In response to the increasingly fierce competition in the industry and the needs of users in high-end application scenarios, the company laid out production capacity ahead of schedule, strengthened customer stickiness, and reduced the risk of the market being occupied by competitors. The company has a 100-ton and a 1,000-ton high-performance carbon fiber production line. The production line is a flexible production line that can produce different specifications and grades of carbon fiber in the same production line. In addition, a fixed increase was issued in March 2022. The capital raised will be invested in the construction of two carbon oxide production lines with a total annual output of 1,500 tons of carbon dioxide and textile products, with an annual output capacity of 1,500 tons (12K) of high-performance carbon fiber and fabric products. At present, while insuring delivery, the company is also speeding up the construction of the third phase of the project. The construction of civil engineering projects has been completed 95% during the period, and the equipment order contract rate has already exceeded 95%. We believe that the aerospace-grade carbon fiber market for aerospace is characterized by high entry barriers and stable suppliers. As a leader in the field of industrialization of high-performance carbon fiber in China, the company has a high localization rate of products and production equipment, and is in the first tier of technology in the country. At the same time, it has established a complete and scientific R&D model, focusing on R&D accumulation and intellectual property rights. It is expected that the core will benefit from the rapid development of China's aviation industry in the future.

Profit forecast: The company's net profit for 2022-2024 is predicted to be 437 million, 729 million and 971 million yuan respectively. The corresponding PE valuation is 56, 33, and 25 times, respectively, maintaining the “highly recommended” rating!

Risk warning: The company's orders fell short of expectations, the company's cost investment was higher than expected, and the valuation fluctuated in the secondary market.