Event: on October 30, the company released its 2023 quarterly report, which showed that the first three quarters of 2023 realized operating income (1.711 billion yuan, + 72.75%) and net profit (167 million yuan, + 24.47%). Excluding the influence of share payment fees, the net profit was (229 million yuan, + 50.42%). 23Q3 realized operating income (529 million yuan, + 43.95%) and net profit (51.2915 million yuan, + 26.26%). Excluding the influence of share payment fees, the net profit was (69.6706 million yuan, + 32.07%).

Duran Aerospace fully put into production led to a high increase in income, single Q3 delivery structure differences lead to gross profit margin pressure. During the reporting period, the company actively opened up the market and continuously enhanced the competitive advantage of its products. at the same time, the subsidiary Delan Aerospace was fully put into production, the company's overall production capacity increased steadily, and sales orders increased. The company's operating income in the first three quarters increased by 72.75% to 1.711 billion yuan compared with the same period last year.

From a quarterly point of view, the company's 23Q1-23Q3 operating income was 560 million yuan, 623 million yuan, 529 million yuan, 23Q3 revenue increased by 43.95% year-on-year, a decrease of 15.07%, reflecting the company's production and marketing capacity increased significantly along with capacity expansion, while there are also quarterly fluctuations.

23Q3 gross profit margin is 23.95%, lower 8.88pct than the same period last year, 4.90pct lower than the previous month, or due to changes in the pace of pick-up by end customers of high value-added products. 23Q3 achieved a total net profit of 51.2915 million yuan, an increase of 26.26% over the same period last year, corresponding to a net interest rate of 9.66%, which decreased 1.40pct and 0.82pct compared with the same period last year. After excluding the impact of share payment fees, 23Q3 achieved a net profit of 69.6706 million yuan, an increase of 32.07% over the same period last year, a decrease of 18.78% compared with the previous year, and a corresponding net profit rate of 13.17%, a decrease of 1.19pct over the same period, a decrease of 0.61pct, and a decrease in net profit less than that of the gross profit margin in the same period, reflecting that the scale effect is prominent after the increase of the company's revenue volume. According to the 2022 annual report, it will be confirmed that share-based fees will be 75.7089 million yuan, 29.4643 million yuan and 8.7977 million yuan respectively from 2023 to 2025.

The change in product structure leads to a decline in gross profit margin and a high increase in net profit after excluding share payment fees.

The gross profit margin fell by 6.31pct to 27.56% in the first three quarters of 2023, which is mainly due to the increase in the delivery of energy and gas turbine forgings after the Deyang plant was put into operation, and the fluctuation of end customer demand for high value-added products of single Q3. In the first three quarters of 2023, net profit was realized (167 million yuan, + 24.47%), and the net interest rate fell by 5.23pct to 9.79%, mainly due to share payment fees of 61.6562 million yuan due to equity incentives during the reporting period. Excluding the impact of share payment fees, the net profit was (229 million yuan, + 50.42%), and the corresponding net interest rate decreased by 1.98pct to 13.37% compared with the same period last year. The decrease in net interest rate was significantly lower than that in the same period, mainly because the prominence of scale effect led to a significant increase in profitability. We believe that with the end customers of high value-added products need to gradually restore stability during the quarter, and the capacity of the Deyang plant is gradually full, the company's profitability is expected to be restored to a certain extent.

The balance sheet reflects changes in the pace of Q3 delivery, impairment losses or reversing expectations.

1) first of all, accounts receivable at the end of Q2 increased by 24.91% to 1.059 billion yuan compared with that at the end of Q1, while the income scale increased by 11.20% to 623 million yuan over the same period, reflecting that Q2 delivery and revenue recognition are relatively normal. There was no significant change in accounts receivable at the end of Q3 compared with that at the end of Q2, while the revenue scale of Q3 decreased by 15.07% to 529 million yuan month-on-month, and the gross profit margin decreased by 4.90pct to 23.95% month-on-month, which is expected to be mainly due to the slowing down of the delivery pace of Q3 high-margin products. 2) secondly, the financing of accounts receivable at the end of Q3 increased significantly from 27.1236 million yuan to 31.786 million yuan compared with that at the end of Q2, reflecting that the company is actively optimizing the management of enterprise accounts receivable. 3) in addition, compared with Q2, Q3 decreased slightly compared with Q2, and Q2 did not increase significantly compared with Q1, but the impairment loss of Q2 assets reached 17.4107 million yuan, while Q3 again calculated the impairment loss of 5.2202 million yuan in the case of a decline in inventory scale in the current quarter. The above impairment provision is expected to have room for subsequent recovery, and the performance side may have the corresponding resilience. The prepaid payment has increased significantly by 114.20% to 75.3983 million yuan compared with the end of Q2, which may reflect that the company's current demand for production preparation is clear, and it is positive to purchase materials upstream, and the future performance growth has strong certainty.

Investment suggestion: the company is the core supplier in the field of aeronautical development and aerospace forgings in China. under the background of the gradual batch production of downstream in-service and multi-model products, the company is currently in the transition stage from small batch and multi-variety production to large-scale batch production, and the subsequent capacity release brought about by the company's investment project will further enhance the company's production scale, which is expected to be accompanied by the further realization of the scale effect. Profit flexibility may gradually emerge. It is estimated that the net profit from 2023 to 2025 will be 2.3,4.0 and 560 million yuan respectively, with 25 times PE for 24 years, corresponding to the 6-month target price of 68 yuan, maintaining the "buy-A" rating.

Risk tips: risk of price fluctuations of major raw materials; downstream demand is lower than expected; production expansion progress is not as expected