Introduction to this report:

The company's performance for the first half of 2023 was in line with expectations. The localization of auto parts in China and the rise of domestically produced new energy vehicles are jointly driving downstream demand for fine stamping special steel materials. Combined with the company's raised production capacity and put into operation, it is expected that the company's performance will gradually be released.

Key points of investment:

Maintain the “increase in holdings” rating. The company achieved revenue of 575 million yuan in the first half of 2023, an increase of 3.13% over the previous year, and achieved net profit of 81 million yuan, an increase of 24.62% over the previous year. The company's performance was in line with expectations. Maintain the company's EPS forecast for 2023-25 at 2.23/2.52/2.8 yuan, and the corresponding net profit to parent is 167/188/209 million yuan, respectively. Maintain the company's target price of 44.22 yuan and maintain the “increase in holdings” rating.

Demand is stable, and the growth rate of fine blanking materials for industrial use is fast. In the first half of 2023, the company's revenue for fine blanking materials for auto parts was 476 million yuan, an increase of 2.89% over the previous year, and fine blanking materials for automobiles were relatively stable. In the first half of the year, the revenue of fine blanking materials for industrial use was 65 million yuan, an increase of 12.48% over the previous year. The scope of application of fine blanking materials in China was gradually promoted, and industrial usage gradually increased. From January to July 2023, China's automobile production was 15.488 million vehicles, up 4.5% year on year, of which new energy vehicles increased by 33.2% year on year. Demand in the automotive industry continued to grow, and the company's revenue is expected to continue to grow.

The scale effect has led to an increase in gross margin. In the first half of 2023, the company's gross sales margin was 25.45% and net sales profit margin was 14.01%, up 3.85 and 2.36 percentage points respectively from 2022. The company continues to reduce costs through capacity optimization, process optimization, etc., and the scale effect has further increased. We expect that the company's gross margin still has room to rise.

Equity incentives inject vitality. The company announced the 2023 restricted stock incentive draft. It plans to grant 3 million restricted shares to 39 people, accounting for 4.02% of the current total share capital. The award targets include the chairman and key personnel, and the proposed award price is 17.93 yuan. We believe that this equity incentive covers a wide range and can have a good motivating effect on the company's middle and senior management and stimulate the company's business vitality.

Risk warning: Demand for automobiles has declined sharply.