2023 results are in line with market expectations
The company announced its 2023 results: operating income of 4.780 billion yuan, +7.50% year on year; realized net profit to mother of 1,031 billion yuan, +34.90% year-on-year. Looking at a single quarter, 4Q23 achieved revenue of 1,157 billion yuan, +6.90% year over month, and -4.39% month on month; net profit to mother was 187 million yuan, +99.80% year over year, and -36.15% month on month. The results are in line with market expectations.
Development trends
New aviation materials are growing rapidly, and profitability continues to improve. 1) The company's main pre-impregnation business maintained a high-quality development trend. Sales of aviation composite raw material products continued to grow. Aviation industry composites achieved annual revenue of 4.515 billion yuan, an increase of 6.01% year on year; achieved total profit of 1,267 billion yuan, an increase of 31.25% year on year; realized net profit of 1,088 billion yuan, an increase of 30.20% year on year. 2) In 2023, the company's gross margin reached 36.75%, YOY+5.81ppt. We think it is mainly due to the optimization of the company's product structure; the net margin reached 21.58%, YOY+4.38ppt, and the combined scale effect of product structure optimization showed, driving the continuous improvement of the company's profitability.
The cost side is well controlled, and a high level of research and development lays the core competitiveness. 1) The company's expense ratio for the 2023 period was +1.03ppt to 11.18% year-on-year, mainly due to the increase in insurance premiums for the first batch of products, etc., and the management expense ratio was +1.05ppt to 7.44% year over year. 2) In 2023, the company spent 176 million yuan on R&D, YoY+7.
46% The company continues to promote research and development of new materials and high-end equipment. In 2023, it completed the C929 front-fuselage wall panel trial production verification (PPV) wall panel development, and completed the development and delivery of key components made of commercial aero engine composites. 3) The company's annual operating target for 2024 was to achieve revenue of 5 billion yuan, YoY +4.6%, total profit of 1,282 billion yuan, YoY +5.7%, including new aviation materials revenue targets of 4.912 billion yuan, YoY +5.2%, total profit targets of 1.37 billion yuan, and YoY +7.5%.
Continuing to strengthen industrial capacity building, leading aeronautical composites are expected to share low-altitude economic dividends. 1) According to the company's announcement, the company is vigorously promoting the verification of new pre-impregnation production lines. Two new pre-impregnation production lines built in a park in Shunyi District of Beijing have reached stable production status, while investing 432 million yuan in a new material storage and distribution center, which are expected to be put into use in 2024. 2) Aviation Industry Composites is the only unit in the aviation field in China specializing in the R&D and engineering of composite materials. It undertakes development and research tasks for various models such as the AG600 and C929 series. We believe that with policy support, the low-altitude economy is expected to flourish, eVTOL requirements for weight reduction continue to rise, and the company, as a leader in aeronautical composites, is expected to share the dividends of low-altitude economic development.
Profit forecasting and valuation
Considering changes in the company's downstream delivery pace, we lowered our 2024 net profit forecast by 16.7% to RMB 1,113 million, and introduced a net profit forecast of RMB 1,282 million for the first time in 2025. The current stock price corresponds to 2024/2025 26.0/22.5 P/E. We maintain our outperforming industry rating. Considering the recent decline in the industry valuation center, we lowered our target price by 17.8% to 25.32 yuan, corresponding to 31.7/27.5 xP/e in 2024/2025, with a potential increase of 22%.
risks
1) Risk of rising raw material prices; 2) Risk of price adjustment for specialty products.