Description of the event

The company released its three-quarter report for 2023. 23Q1-3 achieved revenue of 3.623 billion yuan, an increase of 7.69% over the previous year; net profit of 844 million yuan, an increase of 25.84% over the previous year; net profit after deduction of 801 million yuan, an increase of 22.04% over the previous year. Among them, 23Q3 achieved revenue of 1.21 billion dollars, up 13.67% year on year, up 4.28% month on month; net profit of 293 million yuan, up 50.06% year on year, up 35.07% month on month; net profit after deducting non-return net profit of 260 million yuan, up 39.9% year on year, up 20.65% month on month.

Incident comments

Under the influence of uncertain demand and price cuts, the main new materials industry achieved steady growth, and the year-on-year acceleration in the third quarter alone was obvious. The company's single Q3 revenue increased 13.67% year-on-year, up 4.28% month-on-month, for the first time in the past three years, to achieve positive month-on-month growth in the third quarter. Among them, the new aviation materials business achieved revenue of 1,179 billion dollars, an increase of 12.08% over the previous year, an increase of 4.25% over the previous year. Under the influence of medium adjustments and price cuts, it still achieved moderate growth and significant marginal acceleration, reflecting the business resilience brought about by the company's position in the midstream composite industry; the machine tool equipment business achieved revenue of 018 million yuan, up 43.69% year on year, down 0.24% month on month, mainly special equipment and aviation parts This is due to the growth of processing business.

Cost control in the main business combined with loss reduction in the equipment business boosted improved profitability, and performance growth was significantly faster than on the revenue side. The growth rate of the company's single Q3 performance was significantly higher than revenue, mainly due to significant improvements in profitability. The gross profit margin for single Q3 sales was 36.95%, up 5.13 pcts year on year, up 2.31 pcts month on month, leading to net sales margin of 24.72%, up 6.47 pcts year on year and 5.93 pcts month on month. Currently, the company's pre-impregnated products are in the process of changing new and old brands and reducing raw material procurement costs. Changes in product structure and cost control have led to a continuous increase in gross margin. In addition, the company's machine tool equipment business benefited from changes in business structure and reduction in redundant personnel costs. The year-on-year loss in the first three quarters was reduced by 9.86 million, which also led to increased profitability.

Considering the high degree of completion of historical goals and the optimization of the assessment mechanism, high performance in the fourth quarter still unleashes potential. The company's revenue guide for the year 23 was 4.9 billion, total profit was 1,176 billion. The revenue completion rate for the first three quarters was 73.94%, and the total profit completion rate was 84.52%. Historically, the degree of completion of the company's business goals has been high. Under the superposition of the new assessment mechanism, the annual salary for management performance is directly linked to the results of the annual management assessment, so the level of confidence in the business goals is high. Assuming that the company achieves its annual goals, Q4 needs to achieve revenue of 1,278 million (YoY +18.11%) and total profit of 182 million (YoY +75.00%).

Production expansion projects such as advanced pre-impregnation production plants are progressing steadily, improving delivery capacity and consolidating long-term growth momentum. The balance of projects under construction at the end of 2023Q3 was 198 million, an increase of 46.12 million from the beginning of the year, an increase of 47.05% over the previous year, mainly due to increased expenditure on advanced pre-impregnation production plants built by subsidiaries in aviation industry composites. In 2022, the company's advanced aviation pre-impregnation production capacity enhancement construction project started successfully, building a new advanced pre-impregnation production plant and a number of automated pre-impregnation production lines. As of 2023H1, the construction progress of the advanced pre-impregnation production plant project was 29%. After the project is put into operation, the company's delivery capacity will be significantly enhanced, supporting the achievement of the company's medium- to long-term development goals.

Maintain the company's buying rating. The company's net profit for 2023-2025 is estimated to be 10.15/13.66/1,743 billion yuan, an increase of 33%/35%/28% over the previous year. The corresponding PE is 31x/23x/18x, respectively. As the company's internal governance is rationalized, the possibility of increasing the profit forecast is not ruled out.

Risk warning

1. The downstream OEM model listing and delivery process fell short of expectations;

2. The company's project commissioning progress and order acquisition fell short of expectations.