The performance of the first three quarters grew steadily and was upgraded to a “buy” rating
The company is a leading domestic high-end foundry enterprise. In recent years, the company has continued to make efforts in the aero engine field, stably supplying high-temperature alloy blades, chassis and other components to leading customers at home and abroad; in the field of gas turbines, it undertakes the task of localizing turbine blades for major types of gas turbines; in the field of nuclear power, it is one of the few domestic manufacturers with first-class nuclear casting qualifications, benefiting from the recovery of nuclear power units. The company achieved revenue of 1,807 billion yuan (yoy +9.20%) and net profit of 244 million yuan (yoy +7.04%) in 2023Q1-Q3. We expect the EPS for 23-25 to be 0.53/0.67/0.81 yuan, and the average PE (2024E) value for comparable companies is 29X, giving the company 29 times PE in 24 years, and the target price is 19.43 yuan, which is upgraded to a “buy” rating.
The combustion engine business focuses on breakthroughs in development, and the nuclear power business continues to improve
According to the company announcement, in 2023, the company focused on breaking through the gas turbine business on the premise of maintaining the leading edge in the aviation development business, and undertook the task of localizing gas turbine blades of major types of gas turbines at home and abroad. In the field of aero engines, the company continued to steadily supply high temperature alloy blades for certain types of domestic engines. The 23H1 aerospace business achieved revenue of 365 million yuan, +21.56% over the same period; the 2022 National Assembly approved 10 nuclear power units; in July 2023, the State Council approved 10 nuclear power units; in July 2023, the State Council Six units have been approved. The company undertakes many production tasks for nuclear power equipment. It is one of the few domestic manufacturers with first-class nuclear casting qualifications. Benefiting from the recovery of nuclear power unit approval, 23H1's nuclear magnetic materials business achieved revenue of 181 million yuan, +22.57% over the same period last year.
High-end foundry business is the ballast stone of performance. Empowering nuclear energy and aviation embracing the future The company's early foundry products are mainly used in oil and gas, industry and mining. In 2008, the company began developing the nuclear energy business, and has now become the main manufacturer of first-class domestic nuclear pump cases. The nuclear energy business accounted for 14.81% of revenue in 2022, making it the company's third largest business. In 2015, the company entered the aviation circuit, and major products such as aviation development/gas turbine blades have successfully entered the supply chains of GE and China Aviation Development. In 2019-2022, the company's revenue CAGR for this business was 63.48%, making it the company's fastest-growing business.
The company's performance has grown steadily in recent years after using the original high-end foundry business as a ballast stone for performance, while boosting nuclear energy and aeronautical forging products. The revenue side increased from 1,681 million yuan in 2018 to 2.198 million yuan in 2022, and net profit increased from 73 million yuan in 2018 to 402 million yuan in 2022.
Management increased the company's shares and is optimistic about the company's development in the long term
1) Du Yingliu, the company's actual controller, chairman and general manager, increased his holdings of the company by 100,000 shares of tradable shares with unlimited sales conditions through a secondary market auction transaction on 23.6.15. 23.6.15-23.8.25, Du Yingliu increased his holdings of the company by a total of 683 million shares through centralized bidding transactions at the Shanghai Stock Exchange, with a cumulative increase of about 10.33 million yuan; 2) 23.6.15 Du Chao, secretary of the board of directors of the company, increased his holdings by 24,000 shares through centralized bidding transactions on the Shanghai Stock Exchange, increasing his holdings by an average price of 16.23 yuan/share. This round of executive holdings increases shows that the company's management has confidence in the long-term development of the company's “two machines” business and is optimistic about the company's long-term future development.
Risk warning: The recovery of the aero engine market fell short of expectations; the progress of localization of heavy combustion engines fell short of expectations.