Incidents:
On January 24, 2024, Sirui New Materials issued an announcement stating:
Liquid rocket engine thrust chamber materials, parts, and components industrialization project: The project plans to invest 510 million yuan to achieve an annual output of about 300 tons of forgings, 400 sets of rocket engine injector panels, and 1,100 sets of rocket engine thrust interior walls and exterior walls.
Sirui New Material Technology Industrial Park Construction Project (1): A total investment of RMB 820 million, including the “R&D and industrialization project for electric vacuum materials and components with an annual output of 30,000 sets of medical imaging equipment”, with a proposed investment of RMB 400 million; a “project with an annual output of 20 million sets of optical module chip bases/case materials and components”, with a proposed investment of RMB 320 million; and the “tungsten-copper alloy material and parts project”, with an investment of RMB 100 million.
Investment highlights:
Taking advantage of the rise of commercial aerospace, production of liquid rocket engine thrust chamber materials is actively expanding
Commercial space is developing rapidly, and global rocket launches have accelerated markedly. According to the official accounts of the China Aerospace Industry Quality Association and the Beijing Aerospace Long March Science and Technology Information Research Institute, the number of global rocket launches only increased from 85 to 91 from 2000 to 2017, and rapidly increased to 223 from 2017 to 2023, more than doubling. The main engine is the core component of the launch vehicle. The technology is complicated and the cost is high, accounting for 30% to 50% of the overall cost of the rocket. Liquid engines, on the other hand, have the advantage of being recyclable, and in the context of commercial aerospace pursuing cost reduction, they have significant advantages.
Liquid rocket engine thrust interior wall materials require excellent high temperature resistance and thermal conductivity. The company successfully expanded its self-developed high-strength high-conductivity copper alloy material with chromium-zirconium-copper (CuCrZr) as the core to the field of liquid rocket engine thrust interior walls, and has been successfully applied. By 2023, the company expects to have a production capacity of 100 units. Under the rise of commercial space, the company plans to build a production capacity of about 300 tons of forgings, 400 sets of rocket engine injector panels, 1,100 sets of rocket engine thrust interior walls, and exterior walls.
Various fields welcomed boom, and comprehensive expansion of production opened up room for growth
The company takes the preparation technology of copper-based special materials as the core to expand emerging downstream fields, and with its core technical advantages, the company has achieved supply to leading downstream customers in many fields. As many fields welcomed a boom window, the company expanded production across the board, opening up room for growth.
Medium and high voltage electrical contact materials and products are mainly copper-chromium and copper-tungsten alloy materials. The company successfully solved the problem of import substitution and resold overseas, achieving a leading global market share in the field of segmented materials. Based on existing production capacity, the company plans to invest 100 million yuan to build an annual production capacity of 300 tons of copper and tungsten contacts.
As the most expensive consumable component in CT, CT tubes are currently mainly supplied by overseas suppliers, and there is plenty of room for domestic replacement. The company has independently developed manufacturing technology for CT and DR ball tube components, and has achieved batch supply to leading downstream manufacturers such as Siemens Healthcare and Shanghai Lianying. By 2023, the company expects to have a production capacity of 6,000-8,000 sets of CT and DR tube components. The company plans to invest 400 million yuan to build a production capacity with an annual output of 30,000 sets of CT tube components, 15,000 sets of DR ray tube components, 500 linear accelerator components, 3,500 semiconductor product components, and 30,000 sets of high-voltage VI conductive system components. Among them, high-voltage VI conductive system components are in the sample verification stage, and other products have been mass-supplied to the market.
According to Lightcounting's forecast, the global optical module market size will grow by CAGR 11% from 2023-2027. At the same time, AIGC's demand for high computing power will also accelerate the iteration of optical modules to 800G and above products. The company extends the core preparation technology of tungsten-copper alloy materials to optical module chip base materials. By the end of 2023, the company expects to have a production capacity of 2 million pieces. The company plans to invest 320 million yuan to build an annual production capacity of 20 million sets of optical module chip bases and 10 million sets of optical module chip cases. Among them, the optical module chip base has been supplied in batches to Finisar and Tianfu Communications, and the optical module chip case is in the sample verification stage.
Profit forecasts and investment ratings
The company focuses on the preparation technology of copper-based specialty materials to expand emerging downstream fields. Medium and high voltage electrical contact materials and products, and high-strength and high-conductivity copper alloy materials and products are the two major dominant businesses, leading in market share, and are expected to continue to grow steadily in the future. Newly expanded liquid rocket engine thrust interior walls, CT&DR ball tube components, high-performance chrome powder, and optical module chip base materials are entering a boom window, and sector performance is expected to grow rapidly. The company is technologically advanced, supplies leading downstream customers, while comprehensively expanding production capacity and has strong growth potential. According to our forecast, the company's 2023/2024/2025 net profit of 1.08/1.45/176 million yuan, corresponding to PE 57, 43, and 35 times PE, covered for the first time, and gave it a “buy” rating.
Risks indicate that downstream demand falls short of expectations, new product development falls short of expectations, the risk of upstream raw material price fluctuations, and the risk of macroeconomic fluctuations.