Key points of investment
Yingliu Co., Ltd., formerly known as Anhui Huoshan Yingliu Foundry Co., Ltd., was established in August 2000. The company is a leading enterprise in the production of special equipment parts. It mainly uses casting parts and material products in high-end equipment fields such as aerospace, nuclear power, oil and gas, and resources. The company focuses on core components for high-end equipment. Its products are exported to more than 40 countries and nearly 100 customers, mainly in Europe and America, including more than 10 Fortune 500 companies such as General Electric, Siemens, Caterpillar, Schlumberger, etc., and many industry leaders such as Emerson. The company's transformation and upgrading has achieved remarkable results. In 2022, the share of the company's revenue from the aerospace and nuclear energy sectors reached 43%, and 2023H1 further increased to 46%.
The “two-machine” business opens up the entire industry chain from alloys to finished parts, and has broad domestic and international market space. Since its listing, the company has focused on developing high-end products in aero engines and gas turbines, promoting transformation and upgrading, and cultivating new momentum for growth. From 2018 to 2022, the company's new aerospace materials and parts business revenue increased 12 times, and the gross margin remained around 45%.
Looking forward to the future, the company's “two-plane” business boom will continue.
1) Domestic military aviation demand continues to grow, and the prospects for commercial development of civil aviation are broad: in the military aviation sector, three factors drive the increase in domestic aero engine demand; C919 large-scale commercial transportation places urgent demands on domestic commercial development. The company is one of the qualified suppliers for commercial development in China, and the 2023H1 company's active models and orders have further increased.
2) Domestic gas turbines are developing rapidly and the market space is broad: in 2021, the Guanghan Gas Turbine CGT25-D gas turbine was successfully exported; in 2023, Dongfang Electric's first nationally produced F-class 50MW heavy combustion commercial demonstration unit was officially put into commercial operation; in 2024, the first prototype of the 300MW class F class heavy gas turbine was successfully assembled and launched; China Aviation's multi-type gas turbines are expected to achieve mass production and small batch production around 2025. The development and production capacity of domestic gas turbines has increased rapidly. China's self-developed gas turbines have entered high-quality development, and there is broad space for domestic replacement.
3) The overseas “two-aircraft” market is developing steadily, and the company's market share is expected to continue to increase: in terms of aero engines, the global civil aviation market has recovered year by year in the past three years, and the delivery volume of Boeing and Airbus commercial commercial aircraft in 2023 was 528 and 735, respectively. According to the “COMAC Market Forecast Annual Report (2021-20241)” published by COMAC, the average annual growth rate of global air passenger turnover (RPKs) for the period from 2022 to 2041 was 3.9%. It is expected that commercial aircraft deliveries for civil aviation will continue to increase, leading to an increase in demand for commercial aero engines. In terms of gas turbines, GE has delivered around 50 heavy gas turbines in recent years, and delivered 58 heavy gas turbines in 2023, an increase of 9% over the previous year. In addition, GE delivered 33 aero-modified gas turbines in 2023, with a total delivery volume of 91 combustion engines. In 2022, the company mass-produced civil aviation engine chassis on a large scale and won the GE Aviation 2022 Lean Supplier Award; the 2023H1, the quality of aero engine chassis provided by the company to overseas customers was stable, and its market share increased rapidly.
Nuclear power approval is opening up room for growth at an accelerated pace, and the nuclear energy materials business is expected to continue to develop rapidly.
The company is a pioneer in the domestic development and production of nuclear power equipment such as first-class casting components, metal insulation layers, and spent fuel grids for nuclear power plants. It has provided hundreds of thousands of products for more than 30 nuclear power units including Changjiang, Fangjiashan, Fuqing, and Haiyang, as well as the Chashima and Karachi nuclear power projects in Pakistan and the Hinkley Point nuclear power project in the UK. The company's nuclear energy business is expected to accelerate development. On the one hand, domestic nuclear power approval has accelerated in recent years, with 10 units approved in 2022 and 2023. In the future, construction of more nuclear power units will increase component demand; on the other hand, in addition to nuclear electrocastings, the company's rigid and flexible neutron shielding materials are expected to contribute new volume as the market expands.
We expect the company's net profit to be 314, 4.12, and 514 million yuan respectively for 2023-2025, corresponding to the current share price PE of 25, 19, and 15 times, respectively, covered for the first time, and given an “increase in holdings” rating.
Risk warning
Domestic and foreign market expansion fell short of expectations; domestic gas turbine and nuclear power industry fell short of expectations; risk of export trade and exchange rate fluctuations; risk of declining profitability due to increased competition.