Event: The company released first-quarter results, Q1 2023, achieving revenue of 280 million yuan, +23.41% year over year; net profit to mother of 57 million yuan, +51.60% year over year.
The commissioning of Liyuan Jinhe contributed to the increase in production capacity and the steady expansion of the business scale: In 2022, the company's fund-raising project “34,800 new sets of high-precision mechanical parts technical improvement project” was successfully implemented, achieving the expansion of effective machining capacity; the supporting casting blank production capacity was complemented by the holding subsidiary Liyuan Jinhe's technical improvement project, contributing to the increase in production capacity in the first quarter of 2023 and further expanding the scale of revenue. The company's overall customer resources are high, and the cooperative relationship is stable. By participating in the customer's new product development, customized casting support development is carried out, and the scale of production and sales continues to expand. We believe that the company's future pace of business expansion is basically in line with the pace of production capacity release. According to the company's announcement, the construction of the “High-Precision Mechanical Parts Production and Construction Project” is progressing smoothly. According to the plan, it will gradually enter the commissioning stage in 2024. The total planned integrated production capacity of 100,000 tons will effectively enhance the company's large-scale casting supply capacity and release the company's performance growth flexibility.
Profitability increased year-on-year, and cost control was stable. In Q1 2023, the company's overall gross profit margin was 37.39%, +3.14pct year on year. The main reason was that the decline in raw material prices released cost pressure. The gross margin was relatively stable month-on-month. From the cost side, in Q1 of 2023, the company's expense ratio was 14.30%, -0.2pct year on year. Sales, management, R&D, and finance expenses were -0.05, +1.21, -1.07, and -0.3pct year on year, respectively. Internal control was relatively stable. The overall net interest rate reached 20.01%, +3.73 pct year on year. The gross margin led to a year-on-year recovery in profit levels, which were relatively stable throughout the year.
Investment advice:
We expect the company's revenue for 2023-2025 to be 1,386/20.60/2,864 billion yuan, respectively, with year-on-year growth rates of 23.7%/48.6%/39.0%, respectively, and net profit to mother of 3.0/4.4/60 billion yuan, respectively. The year-on-year growth rates are 21.2%/47.4%/35.9%, respectively, and corresponding PE is 22/15/11 times, respectively. The company is expected to enter a phase of concentrated production capacity release in the next 2 years. High profits and high growth are relatively outstanding. The compound performance growth rate is expected to exceed 40%, giving a certain valuation negotiation. The 2023 valuation is expected to see 26X valuation, corresponding to a 6-month target price of 32.24 yuan, maintaining a “buy-A” rating.
Risk warning: Raw material prices fluctuate greatly; downstream demand declined due to economic recovery falling short of expectations; capacity expansion fell short of expectations; loss of important customers; business development of acquisitions and participating companies fell short of expectations.