Report summary

Incident: On November 23, the company released a report on raising supporting funds to issue shares to specific targets. The company completed issuing 179 million shares to 10 specific targets. The issue price was 1,170 yuan/share, and the total capital raised was 2100 billion yuan.

The company disclosed its three-quarter report on October 21, and achieved revenue ($4.221 billion, +22.73%), net profit to mother ($243 million, +28.11%), net profit net profit ($78 million, +3966.81%), gross profit margin (20.80%, -0.12pcts), and net profit margin (7.96%, -0.33pcts) for the first three quarters of 2023.

The company's performance grew rapidly in the first three quarters of 2023 and entered the auto parts and oil and gas equipment circuit. During the reporting period, the company completed asset injections for aerospace energy and aerospace molding companies, which brought the company business in the fields of auto parts and oil and gas equipment, and saw rapid growth in revenue and net profit to mother.

The fund-raising project focuses on product upgrading and production expansion, and is expected to bring new incremental space to the company's future performance. The company's R&D investment continued to grow rapidly during the reporting period. The fund-raising projects mainly focused on the transformation of intelligent equipment for shale gas development, automated upgrading of military blasting equipment production lines, the construction of the South Sichuan Aerospace Energy R&D Center, expansion of automotive interior and exterior parts production, and the construction of an aerospace molding R&D center and mold center. The construction period of the project is 2-3 years, and after all are completed, the average annual net profit (after tax) of the overall operation period is expected to reach about 144 million yuan.

The aerospace molded auto parts business helped broaden the company's revenue volume. Aerospace molding mainly focuses on the auto parts business. In 2022, it achieved revenue of 4.194 billion yuan, gross profit of 16.53%, net profit of 183 million yuan, net profit of 4.35%, and operating cash flow of 650 million yuan. It is the largest business area of the company's current revenue (83.68%). Net profit for the 2023-2025 performance commitment period reached $96 million, $106 million, and $114 million respectively.

The aerospace energy oil and gas equipment business is expected to become the core driving force for profitability growth. In 2022, we achieved revenue of 504 million yuan, gross profit margin of 57.85%, net profit of 183 million yuan, net profit margin of 36.34%, and operating cash flow of 67 million yuan. The gross margin of the aerospace energy-related oil and gas equipment business is significantly higher than that of other businesses. Net profit reached 205 million yuan, 226 million yuan and 238 million yuan respectively during the 2023-2025 performance commitment period.

The company is a diversified business structure integrating design and manufacturing, oil and gas engineering technology, equipment and engineering services from the 7th Academy of Aerospace Science and Technology of China. Our specific opinions and judgments are as follows: ① Auto parts products currently account for the largest share of revenue (accounting for 83.60% of revenue in 2022). In recent years, with the rise of the automotive industry, especially new energy vehicles, the demand for diversified and intelligent interior and exterior has brought new opportunities to the market. Combined with the advancement of automotive interior and exterior parts expansion projects in the company's fund-raising projects, there is room for further improvement in the profit contribution of this business.

② Oil and gas equipment products: Aerospace Energy has now developed into one of the leading domestic oil and gas well drilling engineering companies with strong integration and supporting capabilities, and its profitability is currently the strongest in the company's current business (2022 gross profit margin 57.859%, net interest rate 36.349% 6). As China's energy demand continues to increase, and with the country's requirements to guarantee energy security and reduce external dependence, the company's business in the energy sector is expected to become the core driving force for profitability growth.

③ High-performance functional materials: The company's traditional information anti-counterfeiting materials and new electronic functional materials are expected to expand their application in the automotive parts segment through injected assets and build new performance growth points. At the same time, the company is actively expanding international market development. In the future, along with the country's “Belt and Road” high-speed rail strategy, it is expected that breakthroughs will be achieved in overseas markets through enthusiastic negotiations, and performance is expected to grow steadily.

Based on the above view, we expect the company's operating income in 2023-2025 to be 5.585 billion yuan, 6.454 billion yuan and 7.540 billion yuan respectively; net profit to mother will be 376 million yuan, 446 million yuan and 531 million yuan respectively; EPS will be 0.44 yuan, 0.53 yuan, and 0.63 yuan respectively. We have given a purchase rating. The target price is 22.00 yuan, corresponding to 50 times, 42 times and 35 times PE risk alert: the construction progress of the fund-raising project falls short of expectations; downstream demand falls short of expectations; upstream raw material costs fluctuate.