Core views

The company announced investment and construction projects, and plans to expand the scale of liquid rocket engine thrust chambers, medical imaging equipment, optical module chip bases, and tungsten-copper alloy industries. The company is the only scarce domestic target in the field of liquid rocket engine thrust interior walls with the ability to supply everything from materials to finished parts. The new-generation liquid rocket engine thrust interior wall materials developed to fill the domestic gap are expected to fully benefit from the explosion in domestic demand for launch vehicles.

At the same time, fields such as medium and high voltage electricity, medical imaging, and optical module chips are flourishing, and equity incentive plans have been issued to motivate core personnel. The company's future performance is expected to grow rapidly.

occurrences

1. The company issued an announcement to invest in the construction of a “liquid rocket engine thrust chamber materials, parts and components industrialization project”. The project is to be invested in two stages. The first phase is to invest 230 million yuan. The construction period is 2 years. The capital comes from the company's own funding. The overall project is expected to produce about 300 tons of forgings, 400 sets of rocket engine injector panels, and 1100 sets of rocket engine thrust interior walls and exterior walls.

2. The company issued an announcement to invest in the construction of the “Sirui New Material Technology Industrial Park Construction Project (1)”, with a total investment of 820 million yuan, of which 400 million yuan will be invested to build a “R&D and industrialization project for electric vacuum materials and components with an annual output of 30,000 sets of medical imaging equipment”. The construction period is 4 years, and 320 million yuan is invested to build a “project with an annual output of 20 million sets of optical module chip bases/case materials and components”. The construction period is 5 years.

Brief review

The launch vehicle industry chain is booming, and the thrust interior wall is an important component of liquid rocket engines

The demand for launch vehicles from space activities such as constellation construction, manned lunar landing, and deep space exploration is growing rapidly, and the launch vehicle market space is vast. Remote sensing constellations generally include a few to a few hundred satellites, usually launched into SSO orbits, and low-orbit internet constellations contain tens to tens of thousands of satellites, usually launched into LEO orbits. A huge number of constellation construction plans have become one of the main driving forces for launch vehicle development. Global satellite payload launch demand accounts for nearly half of all payload launch requirements. At the same time, space powers are actively planning major space activities such as manned lunar landing and deep space exploration, putting higher demands on rocket carrying capacity. In the future, global point-to-point transportation and space tourism are expected to become a reality, further driving the high demand for launch vehicles. According to Toubao Research Institute, China's rocket market will reach 11.21 billion yuan in 2023, and is expected to reach 28.42 billion yuan in 2027. The CAGR is as high as 26%, which is higher than the global growth rate.

Rocket engines are the core of launch vehicles, and the thrust chamber wall is an important component with high barriers in liquid rocket engines. Rocket engine technology is complex, and its performance directly affects the rocket's carrying capacity and flight efficiency. Rocket engines are expensive, accounting for 30% to 50% of the total cost of rockets. Compared with solid launch vehicles, liquid rockets have strong carrying capacity and can be reused. They are the focus and core of launch vehicle development in various countries. The thrust interior wall is an important component of a rocket engine. The high-temperature and high-pressure gas heat generated by propellant combustion is converted into kinetic energy in the thrust chamber. The thrust interior wall material is required to have good high temperature resistance and high thermal conductivity, which can export the heat of fuel combustion during rocket launch to ensure the normal operation of the engine. For thrust interior wall products, high market entry conditions, mature process technology, reliable quality performance, supply chain stability guarantee, sustainable development, etc. are all basic characteristics of this industry. Thrust interior walls are mainly composed of high-temperature resistant high-conductivity copper alloy material design, preparation, 3D printing or forging, spinning, precision processing, assembly and welding. In the entire industrial chain, design, preparation, 3D printing, precision processing and assembly welding of high temperature resistant and high thermal conductivity copper alloy materials are currently key links with high technical barriers.

The company uses the traditional advantages of high-conductivity high-strength copper alloy materials to enter the field of liquid rocket engine thrust interior walls, and plans to expand the scale of the industry and rapidly improve its core competitiveness

The company has extensive experience in the field of high-conductivity high-strength copper alloys and is in a leading position in the industry. Through its accumulation in the field of high-strength and high-conductivity copper alloys, the company already has a strong technical foundation, industrial base and market foundation. It also has world-class material design/modification, flexible manufacturing, and personalized non-standard deep processing components for high-strength high-conductivity copper alloys. Currently, China's high-strength high-conductivity copper alloy materials mainly rely on imports. The high-strength high-conductivity copper alloy materials developed by the company are in the stage of replacing imports and have become one of the main suppliers in this global segment. Customers mainly include well-known companies such as Wabtec Group, Alstom, Bombardier, Siemens, Skoda, GE Energy, CRRC, and Jinxi Industrial Group. The company is in a leading position in the industry.

With the company's core technical support, high-strength and high-conductivity copper alloy products have gradually expanded into the field of liquid rocket engines. In 2021, the company successfully tested precision processing technology for high-strength high-conductivity copper alloy products for liquid rocket engine combustion chambers, and received orders of more than 8 million in this application; in 2022, the company increased the overall processing efficiency of liquid rocket engine thrust interior wall products by 20%; breakthrough progress was made in the development of next-generation nozzle CuCrnB materials, and manufacturing technology for high-strength high-conductivity copper alloy rod billets for liquid rocket engine thrust interior walls was successfully tested and supplied in batches; in 2023, the company developed a new generation of liquid rocket engines for thrust interior walls CuCrnB materials and preparation technology have also been developed in small batches, and 3D printing processes, hot isostatic pressing processes, forging processes, etc. of CuCNB materials have reached the leading level in China. The processing efficiency of high-strength high-conductivity copper alloy inner wall products for liquid rocket engine thrust chambers has been further improved, and the processing efficiency of high-strength high-conductivity copper alloy inner wall products for liquid rocket engine thrust chambers has been further improved, and the development of next-generation copper alloy materials and preparation technology for liquid rocket engine thrust interior walls has reached the leading level in China.

The company's liquid rocket engine thrust interior wall products have entered mass production and are in an important position in the industry. On the one hand, the company's products serve major national aerospace projects, and on the other hand, they continue to serve enterprises such as Blue Rocket Aerospace, Star Glory, Kyushu Cloud Arrow, Zhongke Aerospace, and Tianbing Technology, which are rapidly accumulating energy. The company is in an important position in the liquid rocket engine thrust interior wall industry. One of the main reasons is that it benefits from the company's leading position in high-strength and high-conductivity copper alloy materials. Second, the company has core technology and key equipment for high-strength and high-conductivity copper alloy manufacturing, and third, the company's thrust interior wall products have been verified by key customers.

The company plans to rapidly expand the scale of the rocket engine thrust interior wall business industry and develop next-generation liquid rocket engine thrust interior wall materials to fill the domestic gap. The company plans to invest in the construction of a “liquid rocket engine thrust chamber materials, parts and components industrialization project”. The first phase is to invest 230 million yuan, and the construction period is 3 years. It is expected to produce about 200 tons of forgings, 200 sets of rocket engine injector panels, 500 sets of rocket engine thrust interior walls, exterior walls and other components. The second phase plans to invest 280 million yuan. The construction period is 2 years. It is expected to achieve an annual output of about 100 tons of forgings, 200 sets of rocket engine injector panels, and 600 sets of rocket engine thrust chambers Components such as walls and exterior walls. The overall project is expected to produce about 300 tons of forgings per year, 400 sets of rocket engine injector panels, 1100 sets of rocket engine thrust interior walls, and exterior walls. Among them, forgings and thrust interior walls have been supplied in small quantities. As of June 30, 2023, 50-100 sets of finished product processing capacity have been built. Currently, it is the only domestic R&D and manufacturing enterprise with the ability to supply everything from materials to finished parts. The company focuses on rocket engine thrust interior walls of major national aerospace engineering pre-research models, and solves the technical problem of “purification” of key copper alloy materials through core technology extensions. The self-developed new copper-chromium-niobium high temperature resistant copper alloy has been jointly verified with downstream customers, and its performance has basically reached the international advanced level, filling domestic gaps, and achieving autonomous control of key materials and key manufacturing technologies for next-generation rocket engine thrust interior walls in major national aerospace projects.

Various fields of medium and high voltage electricity, medical imaging, and optical modules have blossomed. Equity incentives show long-term development confidence. The company is in an important position in China in the fields of medium and high voltage electrical contact materials and products, CT and DR tubes, and is progressing rapidly in the field of optical module chip bases:

1) Medium and high voltage electrical contact materials and products: including copper-chromium contacts and copper-tungsten contacts, mainly used in various medium and high voltage switches. Based on the impact of dual carbon on reducing greenhouse gas emissions, there is a trend where 72.5 kV, 126 kV, and 252 kV SF6 switches are being replaced by vacuum switches. The company continues to increase R&D innovation and production capacity expansion to support the upgrading and upgrading of the global medium and high voltage switch industry. The company focuses on R&D and manufacturing of medium and high voltage electrical contact materials, and has become number one in the global industry in this segment of new materials. The company's products have been updated and upgraded for three generations, leading the world in innovation capabilities, ranking first in the world in invention patents, and leading product market share. The company's product has solved the problem of national grid construction contact materials relying on imports, and has been resold globally, with a domestic market share of more than 60%. Major customers include Siemens, ABB, Schneider, Eaton, Toshiba, Asahi Electronics, China Denso, BOE, etc.

2) CT and DR tubes: important components in medical imaging equipment, including tube shell components, rotor components, bearing sleeves, cathode parts, etc.

Based on the strict requirements of the medical industry chain, the company integrates its own metal materials, high-precision processing, high-precision vacuum brazing, surface treatment and other technologies to provide customers with high-standard products in batches. At the same time, the company uses core technology to expand its business into new application fields such as nuclear magnetic resonance, medical electronic linear accelerators, and semiconductor equipment. The company is in an important position in the field of CT and DR ball tube components, and is one of the few domestic enterprises that can provide such products and “one-stop” technical services. The company mainly provides products and technical services to domestic CT tube companies, and successfully entered the international market in 2021. The company has strong technical strength in this field, and its market share is constantly expanding. Major customers include Siemens Healthcare, Varex, Lianying Healthcare, Kunshan Medical Source, etc.

3) Optical module chip base: With the rapid development of artificial intelligence, market demand for data transmission speed and data storage capacity continues to increase. In order to ensure stable transmission and processing of large data for optical modules, optical module chip base materials need to have a low expansion coefficient and high thermal conductivity. Because tungsten-copper thermal deposition materials have low expansion and high thermal conductivity, they have high application value in the high-speed optical module industry. The company's products can meet the needs of new optical module scenarios. The company provides overall solutions for manufacturing raw materials and processing of finished products for optical module bases, and has a basic and automated production line for high-precision parts processing. The company's main customers include Finisar, Tianfu Communications, Global Radio and Television, and Dongguan Xuntao.

The company invested in the construction of the “Sirui New Materials Technology Industrial Park Construction Project” to consolidate its core competitiveness in these fields. The company plans to invest 820 million yuan, of which 400 million yuan will be invested to build a “R&D and industrialization project for electric vacuum materials and components with an annual output of 30,000 sets of medical imaging equipment”, a construction period of 4 years, and an investment of 320 million yuan to build a “project with an annual output of 20 million sets of optical module chip base/case materials and components”. The construction period is 5 years, and the construction period is 100 million yuan. After completion, the project can expand the company's production capacity to meet growing market demand, increase R&D efforts to improve product performance, thoroughly understand customer needs and respond in a timely manner, provide customers with better products and services, and bring new opportunities for order growth.

The company issued an equity incentive plan, demonstrating confidence in long-term development. The company announced the 2023 stock option incentive plan (draft). It plans to grant 16.88 million stock options to 85 incentive recipients, accounting for 3.00% of the company's total share capital of 560.14 million shares on the day the draft incentive plan was announced. The first exercise price of the plan to grant incentive target stock options is 12.80 yuan/share. Based on the company's net profit attributable to shareholders of the listed company in 2023, net profit attributable to shareholders of the listed company after deducting non-recurring profit and loss was assessed. The trigger value for the 2024 non-net profit growth rate deducted was 25%, the target value was 40%, the trigger value for 2025 was 60%, and the target value was 100%. The equity incentive plan shows the company's confidence in long-term development.

Profit forecast and investment advice: The company is a scarce target in the field of liquid rocket engines. It has blossomed in various fields of medium and high voltage electricity, medical imaging, and optical modules, and maintains a “buy” rating

The demand for launch vehicles from space activities such as constellation construction, manned lunar landing, and deep space exploration is growing rapidly. The launch vehicle market space is vast. The company gradually expanded into the liquid rocket engine field based on the core technology of high-strength and high-conductivity copper alloy products. Liquid rocket engine thrust interior wall products have entered the mass production stage. Currently, it is the only scarce domestic target with the ability to supply from materials to finished parts. The company plans to rapidly expand the scale of the rocket engine thrust interior wall business. The next-generation liquid rocket engine thrust interior wall materials developed to fill the domestic gap. In addition, the company is actively expanding the scale of the medium and high voltage electrical contact materials and products, CT and DR ball tubes, and optical module chip base industries, and issuing equity incentive plans to motivate core personnel. More growth is expected to drive rapid future performance growth. We expect the company's revenue for 2023-2025 to be 11.61, 13.77, and 1,655 billion yuan, up 16.88%/18.57%/20.16% year on year, and net profit to mother of 1.04, 1.36, and 183 million yuan, up 33.16%/31.14%/34.24% year on year. Corresponding PE is 60X, 45X, and 34X respectively, maintaining a “buy” rating.