Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved revenue of 2,795 billion yuan, an increase of 32.35% over the previous year, and realized net profit of 423 million yuan, an increase of 20.61% over the previous year.

Key points of investment

Business growth drives the company's performance to continue to improve, and faster repayments provide sufficient cash flow: As of the third quarter of 2023, the company achieved revenue of 2,795 billion yuan, a year-on-year increase of 32.35%, net profit of 423 million yuan, a year-on-year increase of 20.61%; 2023Q3 achieved revenue of 814 million yuan, a year-on-year decrease of 4.73%, and net profit of 125 million yuan, a year-on-year increase of 2.84%. The increase in performance was due to growth in the company's aviation, petrochemical and power forging businesses. Due to the company's strengthened management of receivables, both the speed of repayment and the amount of repayment have increased. As of the third quarter of 2023, the net cash outflow from the company's operating activities was 72 million yuan, a decrease of 96.22% over the previous year.

The production capacity of the aerospace forging business was expanded, and the industrial chain extended downstream: the company issued convertible bonds to raise 1.95 billion dollars in capital to build an intelligent production line construction project for precision annular forgings with special alloys for aerospace, precision processing and construction projects for aerospace components, and supplementary working capital. The aerospace forging project invested 1,300 million yuan to engage in the forging and rough processing of various alloy ring forgings. According to the company's estimates, the annual production revenue is estimated to reach 2.02 billion yuan. Furthermore, the increase in aircraft production has shown the characteristics of economies of scale, leading downstream OEMs to shift to a “supply chain management+assembly integration” model, while upstream forgings will shift to a state of delivery of precision machined parts with higher added value. Furthermore, the company will extend the industry chain downstream and invest 4.6 billion yuan in precision processing projects, forming a total precision processing capacity of 41,740 pieces of aerospace structural parts and large-scale aviation equipment mold tooling after delivery.

Deeply involved in the forging industry has received many qualifications and accreditation, and the release of aerospace equipment has brought incremental markets: the company is mainly engaged in forging business. The products are used in aviation, aerospace, nuclear power and new energy industries, and its stable and reliable products have won wide recognition from leading domestic enterprises in various fields such as the aviation industry, aviation development group, CNPC, and Sinopec. During the “14th Five-Year Plan” period, China will accelerate the upgrading of weapons and equipment and the development of intelligent weapons and equipment, and will greatly increase domestic demand for aerospace forgings in terms of quantity and quality in the future.

Profit forecast and investment rating: The company's performance is in line with expectations. The company is the core supplier of aerospace ring forgings in China. Based on the company's leading position in the industry and considering the pace of downstream equipment, we adjusted our previous forecast for 2023-2025 and predicted that the company's net profit from 2023-2025 would be 6.40 (-0.37) /7.61 (-0.01) /9.96 (-0.01) billion yuan. The corresponding PE was 16/14/10 times, maintaining the “buy” rating.

Risk warning: 1) raw material price fluctuations; 2) technology development falls short of expectations; 3) risk of property rights infringement; 4) exchange rate and settlement risk.