Event: the company released its mid-2023 report, with revenue of 1.981 billion in the first half of 2023, an increase of 57.53% over the same period last year, and a net profit of 298 million, an increase of 30.04% over the same period last year. Thanks to sufficient orders, the business of forgings for electric power and petrochemical has grown.

Main points of investment

Operating income and demand recovered significantly, and revenue increased by 57% in the first half of 2023: due to the growth of aerospace, petrochemical and electric forgings business, operating income reached 1.981 billion in the first half of 2023, an increase of 57.53% over the same period last year, and home net profit was 298 million, up 30.04% from the same period last year. 2023H1 aerospace forgings business revenue reached 679 million yuan, an increase of 20.03 percent over the same period last year, achieving substantial growth. Petrochemical forgings 490 million, an increase of 69.30 percent, and electric forging revenue of 479 million, an increase of 297.04 percent over the same period last year. 2023H1's gross profit margin was 26.72%, an increase of 0.26pct over the same period last year. The company's 2023H1 four fees changed greatly, with sales expenses reaching 30.2888 million yuan, with an increase of 57.62%, management expenses reaching 35.9482 million yuan, with an increase of 31.94%, R & D expenses reaching 89.4086 million yuan, with an increase of 69.84%, and financial expenses of-10.3051 million yuan, caused by an increase in exchange gains and losses.

The proposed issuance of 19.5 convertible bonds for capacity expansion is expected to enhance the company's competitive advantage: the company plans to issue 1.95 billion convertible bonds to invest in aerospace special alloy precision ring forgings intelligent production line construction projects, aerospace parts precision processing construction projects and supplementary liquidity. After it is put into production in the future, the company's annual output of aerospace ring forgings will increase by 5500 tons, and it will have the ability to process 41740 additional aerospace parts, which is expected to enhance the company's sustainable development capacity.

With the help of the development of Dongfeng during the 14th five-year Plan, it is expected to benefit from the release of downstream equipment: the company is a leader in forging business, and its products are widely used in aviation, aerospace, nuclear power, new energy and other industries. With the arrival of the national industrial policy of vigorously developing the equipment manufacturing industry and the promotion of market demand, the industry is faced with adjusting the industrial structure and narrowing the gap with overseas manufacturing, and there will be a larger demand space in the future. The company has significant equipment advantages, the introduction of foreign advanced production equipment, now has a number of presses and precision CNC ring rolling machines, the company has the ability to produce diameter 200-10000mm, height 30-1600mm various specifications of ring forgings and special-shaped forgings, the future is expected to continue to benefit from aerospace, new energy in many fields during the "14th five-year Plan" period. As of the first half of 2023, the company has obtained a total of 82 patents, of which 46 are invention patents, ranking first in the industry.

Profit forecast and investment rating: the company is the core supplier of aerospace ring forgings in China. Based on the company's leading position in the industry and taking into account the volume pace of downstream equipment, we forecast that the company's 2023-2025 net return profit will be RMB 7772max 997 million, corresponding to PE times that of 18-16-12, with a "buy" rating for the first time.

Risk tips: 1) raw material price risk; 2) technology update speed risk; 3) intellectual property risk; 4) international payment and settlement risk.