Incidents:
The company announced its performance report for the third quarter of 2023. According to the company announcement, the company achieved revenue of 3,088 billion yuan (yoy -5.47%), net profit of 583 million yuan (yoy -32.13%), net profit of 583 million yuan (yoy -32.13%), and net profit of 512 million yuan (yoy - 35.12%) after deducting non-return net profit in Q1-Q3 of 2023. The company achieved revenue of 976 million yuan (yoy -17.45%) and net profit of 161 million yuan (yoy -47.24%) in a single quarter in Q3. The results for the third quarter of '23 fell short of market expectations.
Comment:
The product structure adjusts the company's revenue, and executive buybacks highlight the company's confidence in development. Our analysis believes that 1) The decline in revenue is mainly due to product sales restructuring. 2) According to the company announcement, some of the company's executives plan to increase their holdings of the company's shares within 6 months from October 9, 2023, with an increase of not less than 7 million and no more than 14 million. This repurchase shows confidence in the company's development and further promotes the company's sustainable and healthy development.
Affected by rising raw material costs and R&D expenses, the company's profitability declined. According to the company's announcement, the gross margin for Q1-Q3 in 2023 decreased by 7.31pcts to 33.20% compared to the same period last year, and the net profit margin decreased by 6.98pcts to 19.75% compared to the same period last year. We believe that 1) the decline in gross margin is mainly due to the increase in the cost of raw materials such as titanium sponge, ferronickel, etc.; 2) the cost rate for the period increased by 1.81pcts to 11.97% compared to the same period last year. Among them, the R&D cost rate increased significantly, increasing 1.44pcts to 6.74% over the same period last year.
As raw material prices stabilize and scale effects are added, the company's profitability is expected to increase.
Maintain a high level of inventory and speed up the pace of production and preparation. According to the company announcement, as of the end of 23Q3, the company's inventory was 3.106 billion yuan, which remained high, indicating that the company's follow-up orders are full, downstream demand is sufficient, and future performance is expected to resume growth.
As a core supplier of high-end metal materials in China, the high market boom combined with the release of production capacity will help the company accelerate development in the future. 1) Accelerated military aircraft procurement+increased usage penetration rate+gradual maturity of large domestic aircraft, China's high-end titanium alloy demand is expected to accelerate, industry high barriers+oligopoly competition pattern, and the company is expected to continue to benefit; 2) With the promotion of domestic “two aircraft projects” and other policies, China's high temperature alloy industry ushered in historic development opportunities. The company invests in and expands the production of superalloys. With downstream verification and the release of production capacity, the company may open up a second growth curve; 3) The industrialization of superconducting materials and magnets continues to advance, and it is expected that the market share and profit level of related products will continue to advance Improvement; 4) The company continues to increase R&D Investment to further enhance the company's technological leadership and product competitiveness of high-performance titanium alloys, high-temperature alloys, and superconducting materials.
Downgrade the 2023-25 earnings forecast and maintain the “buy” rating. Considering product restructuring, compounded fluctuations in raw material prices and rising R&D expenses, we lowered the company's net profit in 2023-25 to 9.58/13.38/1,745 billion yuan (previous value was 13.85/17.28/2,091 billion yuan). The current stock price corresponding to PE is 32/23/17 times, and selected Longda Co., Ltd. (mainly engaged in high temperature alloys), Tunan shares (mainly in high temperature alloys), and steel research and Gaona (mainly engaged in new materials for aviation development) as comparable companies. Comparable companies are all core suppliers of new aviation materials, downstream applications and customers The group is similar and adaptable. The average valuation of comparable companies in 2023 was 39 times, and the company's valuation was lower than the industry average. Considering that the company, as the core enterprise of titanium alloys and superalloys in China, benefits from the boom in the downstream of the industrial chain, the company's net profit is expected to resume rapid growth and maintain its “buy” rating as businesses such as high temperature alloys and superconducting materials accelerate.
Risk warning: risk of raw material price fluctuations; product delivery falls short of expectations; capacity release falls short of expectations