In a case of BLE: _s highlights M's confidence in the future development of the Y] company and recognition of the company's long-term investment value, the company announced that some management will increase their holdings of the company by not less than RMB 7 million and no more than RMB 14 million. As of November 16, the total increase in holdings was RMB 7.2211 million, and the increase in holdings will continue to be implemented according to the holdings increase plan.

Comment:

Some executives have their own capital to increase their holdings of the company, demonstrating confidence in future development

On October 8, the company issued an announcement. Some executives plan to increase their holdings within 6 months through their own capital or self-raised funds. The increase amount is not less than RMB 7 million and no more than RMB 14 million. As of November 16, the total increase in holdings was RMB 7.2211 million, and the entities increasing their holdings will continue to increase their holdings of the company during the implementation period of the increase in holdings in accordance with the relevant holdings increase plan. Increased shareholding by management will promote the sustainable and healthy development of the company, protect the interests of the company and all shareholders, stabilize market expectations, and enhance investor confidence.

Delivery pace and product restructuring affect profits, and the company's performance is under pressure in the short term

Affected by the pace of order delivery and the reduction in gross sales profit during the same period due to adjustments in product sales structure, the company achieved operating income of 3,088 billion yuan in the first three quarters of 2023, a year-on-year decrease of 5.47%, and net profit of 583 million yuan, a year-on-year decrease of 32.13%. From 2018 to 2022, the company's operating income and net profit increased by 40.39% and 68.18% respectively, maintaining a rapid growth trend. With the accelerated release of domestic aviation equipment and the trend of domestic substitution of key materials, the company's high-end titanium alloy sector is developing steadily and progressing, and the two product segments, superconducting products and high temperature alloys, have entered a new stage of comprehensive production.

Continued breakthroughs in titanium alloy bar and wire forging technology, and the acceleration of military aircraft installation drives demand for titanium alloys

The company has large-scale titanium alloy bar forging technology, and is the first in China to successfully prepare the largest titanium alloy bars such as TC4-DT and TA15. The performance of the developed large-size titanium alloy bars with a diameter of 650 mm and a single weight of 4.5 tons is at the leading international level. The company has achieved complete localization of Ti45Nb titanium alloy wire for aerospace fasteners, and is one of the only two domestic companies that mass-produce Ti45Nb titanium alloy materials worldwide. At the same time, the company is currently undertaking a large number of research and development projects for materials such as new military aircraft, large passenger aircraft, aero engines, weapons, etc., and related products are highly recognized by domestic and foreign downstream manufacturers such as the aviation industry, China Aviation Development, Safran, and Bombardier, laying the foundation for new product market expansion.

The only domestic commercial manufacturer of low temperature superconducting wire, constructing the company's second growth curve

The company is the only domestic enterprise that commercializes low-temperature superconducting wires in the field of superconducting products, and is currently the only full-process manufacturer of niobium-titanium ingots, superconducting wires, and superconducting magnets in the world. The company is one of the two companies in the world that can mass-produce NbTi alloys for low temperature superconductivity. It has achieved mass production of NBTi superconducting wires for high-performance MRI. It has already supplied SIEMENS and GE in batches, breaking international monopolies and filling gaps in the country. The company independently developed the first high-field strength superconducting magnet for magnetically controlled direct-drawn monocrystalline silicon. The conduction cooling type MCZ has been exported in batches. It has signed supply contracts with many domestic photovoltaic silicon wafer and crystal furnace manufacturers such as Jingsheng Electromechanical, and has opened up the mass production process of MCZ in the photovoltaic field.

The two-engine project is gradually being implemented. The quality improvement of superalloys and the demand for import substitution are imminent

The high-performance superalloy materials produced by the company include deformed superalloys, cast and powder superalloy master alloys, etc., which are mainly used in key national development fields such as aero engines, gas turbines, and nuclear power equipment.

In 2023, the company broke through the high purity smelting control technology and structural uniformity forging control technology of a certain high-strength steel for aviation, and successfully tested multiple batches of bars of different sizes. The comprehensive performance match was good, and downstream application research and evaluation progressed smoothly. At the same time, the company has established long-term cooperative relationships with customers in the aviation industry, China Aviation Development, etc., laying a solid foundation for subsequent marketing and sales of high-performance superalloy materials after mass production. With the implementation of projects under construction, the company's production capacity will increase dramatically, and the company will benefit from the dual advantages of technical qualification barriers and capacity release.

The company's product orders are full, and R&D investment continues to grow

Due to the adjustment of the company's product sales structure, the overall gross margin level declined. The company's overall gross margin for the first three quarters of 2023 was 33.20%, a decrease of 7.31 pcts from the same period in 2022; net profit margin was 19.75%, a decrease of 6.97 pcts from the same period in 2022. As of 2023Q3, the company's advance payments and inventory increased by 56.11% and 53.87%, respectively, compared with the same period last year, which may indicate that the company is actively preparing production and stocking. The company's product orders are full, and the capacity utilization rate is high, and production capacity expansion has been stepped up.

From 2020 to 2022, the company's R&D expenses accounted for 6.19%, 6.35%, and 6.02% of current sales revenue, respectively. In the first three quarters of 2023, the company's R&D expenses were 208 million yuan, an increase of 20.10% over the previous year, accounting for 6.74% of current sales revenue, and continued to invest at a high level of R&D to maintain technological leadership.

Fund-raising projects are progressing steadily, and the company is speeding up the release of production capacity

According to the company's 2023 mid-year report, the “High Performance Superconducting Wire Industrialization Project” raised by the company is expected to be put into operation in December 2023, and the “High Performance Metal Materials Industrialization Project for Aerospace” is expected to be put into operation in December 2024. At that time, 5050 tons and 1,500 tons of titanium alloy materials and high temperature alloys will be added respectively. It is expected that by the end of 2024, the company's high-temperature alloy production capacity will reach 6,000 tons, and the production capacity of high-end titanium alloys will exceed 10,000 tons. The pace of capacity release is progressing steadily, and the future will fully benefit from the rapid development of downstream military industry and other fields.

Investment advice and profit forecasting

With the increasing improvement of the company's three business layouts, the replacement of military aircraft and the volume of civil aircraft have maintained a high boom trend in demand for titanium alloys; the MRI low-temperature superconductivity market gap is large, the company's superconductivity business share has increased rapidly, and strategic contracts have brought strong benefits; new aero engine styling and domestic replacement demand for high-performance superalloys have brought about an increase in the superalloy market, and with the gradual implementation of expansion projects, it is expected that the company's product scale effect will be further demonstrated, and gross margin will continue to rise. It is estimated that in 2023-2025, the company's net profit is 9.23, 12.41 and 1,539 billion yuan respectively. According to the latest share capital estimates, the corresponding basic earnings per share are: 1.42, 1.91, and 2.37 yuan/share. According to the latest stock price estimates, the corresponding PE valuations are 36.10, 26.86 and 21.66 times, respectively, giving the company a “buy” investment rating.

Risk warning

Risk of fluctuations in raw material prices, risk of fund-raising projects not progressing as expected, risk of equipment assembly and mass production falling short of expectations, and risk of R&D progress falling short of expectations.