Event: the company released its quarterly report of 2023 on October 30. 1~3Q23 realized revenue of 1.71 billion yuan, YoY+72.8%; returned net profit of 167 million yuan, YoY+24.5%; deducted non-return net profit of 154 million yuan, YoY+25.9%. The performance is in line with market expectations, and the rapid growth in revenue is mainly due to the steady improvement of the overall production capacity of the subsidiary Delan Aerospace after it was fully put into production, and the increase in the number of orders promoted the growth of product sales. Our comprehensive comments are as follows:

3Q23 revenue increased by 44% year-on-year; increased impairment losses affected apparent profits. In a single quarter, the revenue of 3Q23 is 530 million yuan, the net profit of YoY+44.0%; is 51 million yuan, and the net profit of YoY+26.3%; is 43 million yuan, YoY+17.8%. The revenue end of 3Q23 continues the trend of rapid growth. In terms of profitability, gross profit margin in the first three quarters fell 6.3ppt to 27.6% year-on-year; net profit margin fell 3.8ppt to 9.8% year-on-year.

3Q23 gross margin fell 8.9ppt to 24.0% year-on-year; net profit margin fell 1.4ppt to 9.7% year-on-year. In the first three quarters, the asset impairment loss increased by 10.01 million yuan to 37.33 million yuan compared with the same period last year, and the credit impairment loss increased by 13.81 million yuan to 28.71 million yuan over the same period last year. Together, the two affected the total profit of 238.2 billion yuan.

Convertible bonds are proposed to raise 667 million yuan, which aims to enhance the large-scale ring forging capacity of Delandra Aerospace. On September 13-14, 2023, the company disclosed the application and reply of the 2023 convertible bond. The convertible bond intends to raise 667 million yuan to enhance the large-scale ring forging capacity of Deland Aerospace (467 million yuan) and supplement liquidity (200 million yuan), of which 368 million yuan is used for the purchase of equipment: including 12000 tons of press, 5000m ring rolling machine, 3500 tons of CNC bulging machine and other core ring forging equipment This is the company's capacity construction in Deyang after the IPO project. The large-scale ring forging production line to be built this time and the small and medium-sized ring forging production capacity of the previous IPO project form a good complementarity. After completion, it will form an annual production capacity of 3000 tons of special alloy precision ring forgings in Deyang, effectively solve the problem of insufficient production capacity and improve the company's future profitability.

During this period, the expense rate has been continuously optimized; the advance payment has greatly increased or reflects the upstream boom. During the first three quarters, the expense rate decreased by 2.1ppt to 12.6% compared with the same period last year, of which: the sales expense rate decreased by 0.2ppt to 1.55%; the management expense rate increased by 0.2ppt to 6.4%; the R & D expense rate decreased by 1.9ppt to 3.6%; and the financial expense rate decreased by 0.2ppt to 1.1% compared with the same period last year. By the end of 3Q23, the company: 1) accounts receivable and bills 1.18 billion yuan, 1.1% less than 2Q23 2) inventory 840 million yuan, 14.1% less than 2Q23 3) prepaid 75 million yuan, 114.5% more than 2Q23 end. 4) the net cash flow of operating activities in the first three quarters was-40 million yuan, compared with-120 million yuan in the same period last year.

Investment suggestion: the company is one of the leaders of ring forging in China's aerospace field, benefiting from the "two machines" and high demand for new energy for a long time. The company implemented two equity incentive plans in 2022 and successfully promoted the commissioning of the Deyang plant. We are optimistic about the future development potential of the company. According to the three quarterly reports, we adjust the net profit from 2023 to 2025 to 250 million, 400 million and 600 million yuan, corresponding to 30x/19x/12x in 2023-2025. We maintain the "recommended" rating, taking into account the gradual release of the company's capacity and the medium-and long-term prosperity of many downstream industries.

Risk tips: downstream demand is lower than expected; product prices decline; raw material price fluctuations and so on.