In the first three quarters of 2023, the company achieved revenue of 1.81 billion yuan (+9.2% year-on-year), net profit of 240 million yuan (+7.0% year-on-year), and net profit of 200 million yuan (+19.6% year-on-year) after deducting non-return net profit of 200 million yuan (+19.6% year-on-year), maintaining a steady business trend. We are optimistic that the company's firm position in the fields of “two engines” (aero engines and gas turbines) and nuclear energy and nuclear power will gradually enter a harvest period, open up the long-term growth ceiling, and maintain the “buy” rating.

The company achieved steady growth in the first three quarters of 2023. In the first three quarters of 2023, the company achieved revenue of 1.81 billion yuan (+9.2% year-on-year), net profit of 240 million yuan (+7.0% year-on-year), and net profit after deduction of 200 million yuan (+19.6% year-on-year). In the third quarter alone, the company achieved revenue of 620 million yuan (+12.4% yoy), net profit of 82 million yuan (+1.3% yoy), and net profit of 66 million yuan after deducting non-return net profit (+0.64% yoy).

In terms of gross margin, the company's consolidated gross margin for the first three quarters was 36.9% (y-1.1 pcts), and the company's consolidated gross margin for the third quarter alone was 37.6% (y-1.1 pcts, +1.7 pcts month-on-month). The company's expense ratio remains relatively stable and R&D investment continues to be intense. The sales, management, and R&D expenditure rates for the first three quarters of 2023 were 1.7%, 7.3%, and 11.5%, respectively.

The “two machines” market space is vast, and the company's business continues to expand. (1) Aero-engines: According to the company's announcement, since 2018, the company has developed products for China Commercial Development CJ1000/CJ2000, including more than 20 different types of chassis, blades, and structural parts. It is representative of very few qualified foundry suppliers in China's commercial development supply chain.

In the future, with the gradual release of large domestic aircraft, the company is expected to benefit fully. (2) Gas turbines: According to statistics from Statista, the global gas turbine market in 2015-2020 showed an upward trend. The global gas turbine market in 2020 was US$22.54 billion (+3.5% year-on-year), and China's market size was RMB 50 billion.

The company is deeply involved in gas turbine localization research and development, and undertakes the task of localizing turbine blades for major types of gas turbines. Customers include China Joint Reignition, Shanghai Electric, Dongfang Electric, and aviation combustion engines. In addition, the company also supplies hot-end components such as moving blades, guide blades, and protective rings in batches to overseas customers such as Siemens and Baker Hughes. The company revealed at the 2023 semi-annual performance briefing that since 2023, the company has placed about 450 million yuan in new gas turbine business orders. The company has developed 126 varieties and is currently developing 41 varieties in the gas turbine field. (3) Raw materials for superalloys: According to the company's announcement, the company focused on breaking through superalloy master alloy manufacturing technology in 2022. Currently, 30% of products use homemade master alloys, and new product development mainly focuses on homemade master alloys.

Risk factors: The company's R&D, customer volume, and domestic replacement progress in the field of two-engine superalloys fell short of expectations; increased competition affected the company's profit margin level; progress in nuclear power approval and new construction fell short of expectations; and the risk of large fluctuations in raw material costs and exchange rates.

Profit forecasting, valuation and ratings: The company's dual-engine business continues to expand, and other business segments are growing steadily. We are optimistic about the company's long-term growth space. Since the company's “two engine” business and nuclear power business have a long product verification and introduction cycle, progress has fallen short of our previous expectations, so the company's net profit forecast for 2023 and 24 was adjusted to 360 million yuan and 480 million yuan (original forecasts were 550 million, 690 million yuan), and the net profit forecast for 2025 was increased by 690 million yuan. Comparing high-end core components to the company's 2024 PE valuation level (Hengli Hydraulics 24x, Xinqianglian 26x, Steel Research and Development Gona 27x, Wind), gave The company's 2024 PE 26x, corresponding to the target price of 18 yuan, maintained the “buy” rating.