Incident: According to the disclosure on January 15, 2024, company director Zhou Tong increased his shareholding by 10,000 shares through secondary market trading. The average transaction price was 40.496 yuan. The number of shares held after this increase was 63,600 shares. According to statistics, since October 9, 2023, the company's core technicians and company executives have increased their total holdings by 173,000 shares, providing a transaction amount of 7.96 million. We believe that the large increase in the holdings of the company's board members, core technical personnel and executives shows confidence in maintaining the company's long-term development. As the company's many businesses enter the development stage, the company can be expected to grow in the future.
Performance is under pressure due to product restructuring and rising production capacity. The new products may enter a new stage of full release. In Q1-Q3 2023, the company achieved operating income of 3,088 billion yuan, -5.47% year over year; achieved net profit of 583 million yuan, or -32.13% year over year.
We believe it is mainly due to the restructuring of the company's titanium alloy products and the fact that some of the new products are in a phase where production capacity is climbing. We believe that in the future, as the product structure changes and production capacity is gradually climbed and released, the titanium alloy sector is expected to achieve steady and progressive development, the superconducting products and superalloy product sector may enter a new stage of comprehensive expansion, and the company's operating income and net profit to mother are expected to return to a stage of medium- to high-speed growth.
R&D investment continued to increase to drive long-term growth. Profitability was phased under pressure during the first three quarters, with an expense ratio of 11.97% over the previous three quarters, with sales/management/R&D/finance expenses ratios of 0.58%/3.64%/6.74%/1.00%, respectively, and +0.03/-0.12/+1.44/+0.47pct, respectively. The sharp increase in R&D expenses is mainly due to the company keeping an eye on key material requirements and carrying out independent research and development of new technologies, and advancing R&D activities according to the plan. We believe that the company has maintained a high level of investment in R&D over a long period of time, laying the foundation for the company to maintain technological leadership. An efficient R&D and production system and forward-looking perspective promote the continuous enrichment of the company's product pipeline and create a steady stream of new performance growth points for the company.
The first three quarters achieved a gross profit margin of 33.20%, -7.31pct year on year; achieved a net profit margin of 19.75%, or -6.98pct year on year. The third quarter achieved a gross profit margin of 35.17%, -2.99pct year on year; achieved a net profit margin of 18.23%, or -8.41pct year on year. This is mainly due to adjustments in the company's product structure and a decrease in the gross margin of current sales products. The company's fund-raising project in 2019, the superalloy material and powder plate project for engines and the targeted high-performance superconducting wire industrialization project in 2021 have basically been completed and put into operation, and are currently in the process of climbing capacity. We believe that with the gradual release of production capacity in fund-raising projects, the company's gross margin and output of superalloys and superconducting products have considerable potential to increase in the future. Looking at the company's demand for high-end titanium alloy products in the long run, there is still room for growth. With downstream production plans and other factors confirming, titanium alloy products may achieve steady and progressive development. Currently, the company is in a period of transformation from a single growth curve to multiple growth curves. With the further expansion of the application of the titanium alloy sector and the two product segments of superconducting products and superalloy products, the company's overall gross margin is expected to rise steadily.
Fixed assets+projects under construction may continue to grow. Advanced production lines are expected to add new energy to research and production capacity. By the third quarter of 2023, fixed assets+projects under construction reached 1,609 billion yuan, +25.47% year over year, up 5.85% from 23H1; fixed assets reached 1.37 billion yuan, +20.07% year over year, down 0.29% from 23H1; projects under construction reached 240 million yuan, +68.79% year on year, up 63.21% from 23H1. The company's fund-raising projects, including the aerospace high-performance metal materials industrialization project, and the superconducting industry innovation center are all expected to be put into operation by the end of 2024. As of the first half of 2023, the investment progress of the three projects is 29.47%, 2.92%, and 1.26% respectively. We expect the company's investment in R&D and production capacity building on the asset side will continue to grow in 2024. We believe that the newly built production capacity has higher specialization and intelligent capabilities, injecting new energy into companies with integrated R&D and production capabilities, and may help the company break through material production capacity bottlenecks, and is expected to consolidate the company's core technical advantages in the research and production process of new high-performance materials.
The three core businesses performed well in market expansion, and the rich R&D pipeline provided energy for subsequent growth. The company excelled in technology research and development and market expansion in the first half of 2023, including:
In terms of titanium alloys: The application of high-end titanium in aero engines, weapons, ships, etc. has been further expanded, and production and sales in related fields have reached record highs. The company broke through the key technology of engineering preparation and process stability control of an oversized forged billet of a medium strength titanium alloy; successful trial production of a new high temperature titanium alloy series product; successful trial production of 200-kilogram large single-weight disc round fastener coated titanium alloy wire, and the product performance met technical requirements.
In terms of superconducting products: in the energy sector - the company has established cooperative relationships with many domestic solar pultrating furnace manufacturers and provided key superconducting wires for upgrading monocrystalline silicon magnetic-controlled direct drawing preparation technology in the photovoltaic industry to maintain stable batch supply; in the medical field - production and sales of superconducting wires for MRI continue to reach new high levels, and superconducting wires for novel liquid-free helium/low-liquid helium MRI magnets have achieved batch supply, and domestic and foreign market share continues to expand; in the power field, the company continues to cooperate with application units to develop full-size superconductors for high-speed maglev. batch Chemical manufacturing; in the field of scientific research - superconducting quantum computers use NbTi superconducting coaxial cable preparation technology to obtain new breakthroughs and achieve market supply.
In terms of superalloys: The company successfully tested multiple batches of large and small bars. The comprehensive performance match is good, and downstream application research and evaluation are progressing smoothly. Through multiple engine model process and quality reviews, it has also undertaken several new development tasks for new engine materials; GH2123/GH4169 small-sized fastener bars have successively passed relevant application research and evaluation, and the product process stability is good.
Profit forecast and rating: In summary, we believe that the company is currently in a period of transformation with multiple growth curves entering a phase of overall growth, and will be expected to fully benefit from the rise in prosperity in the three core business segments. The company's production capacity is steady, the product pipeline is rich, the production and research system is advanced, and the incentive system is excellent, and it is expected to build a strong and durable moat. Due to the impact of product restructuring and rising production capacity on the delivery pace, we adjusted the base figure to reduce the company's 2023-25 operating income from 57.07/74.84/9.523 billion yuan to 39.81/61.86/7.875 billion yuan, and reduce net profit to mother from 13.51/17.51/23.46 to net profit of 7.25/11.09/1,422 billion yuan. The corresponding PE is 34.26/22.40/17.46x, maintaining the “buy” rating.
Risk warning: risk of high market concentration and demand fluctuations; risk of declining market competitiveness; risk of fluctuations in raw material prices.