Lower profit forecasts and maintain “buy” ratings
Western Superconductor released its annual report, achieving revenue of 4.159 billion yuan (yoy -1.62%) and net profit of 752 million yuan (yoy -30.34%) in 2023. Considering the decline in the company's high-end titanium alloy sales due to fluctuations in demand for downstream military aircraft, we lowered the company's titanium alloy business revenue and gross margin forecast values. The company's 2024-2026 EPS is 1.67, 2.03, and 2.52 yuan respectively (2.23 and 2.89 yuan before 24-25). Comparatively, the company's 24-year Wind unanimously expected an average PE value of 18 times. Considering that the company's superalloy and superconducting business gradually entered a high-growth trajectory, opening up long-term growth space and being scarce, the company was given 26 times PE in 24 years, with a target price of 43.42 yuan (previous value of 55.75 yuan), maintaining a “buy” rating.
The high-end titanium alloy business was affected by fluctuations in downstream demand, which put pressure on performance by product in 2023:1) The revenue of the titanium alloy business was 2.05 billion yuan, -21.96% year on year, gross margin was 34.41%, -8.88pcts year on year. The unit price of titanium alloy decreased from 373,000 per ton in '22 to 34.5 million/ton. We believe that the company was mainly affected by fluctuations in demand for downstream military aircraft in '23, leading to a decline in revenue, unit price, and gross margin in the company's titanium alloy segment; 2) revenue of superconducting products was 985 million yuan, +57.94% year on year, gross margin was 34.39%, +3.95pcts year on year; 3) superalloy business revenue was 474 million, +161.79% year on year, gross margin was 15.86%, year on year +12.57 pcts. The popularity of the company's superconducting and superalloy products continues to improve.
Product restructuring led to a decline in gross margin. The company maintained high R&D investment, and the company's gross sales margin was 31.87% in 2023, -7.58pcts year on year, mainly due to product restructuring. The cost ratio for the period was 14.45%, +2.75pcts year on year, and the net sales margin for the whole year was 18.38%, -7.53pcts year on year. In terms of period expenses, due to factors such as increased office expenses, labor remuneration, and increased loans, the company's management expenses rate in '23 was 4.68%, +0.77pcts year on year. The company insisted on implementing the “production generation, R&D generation, and reserve generation” technology research and development policy. The R&D expenses rate in '23 was 7.92%, +1.91pcts year over year, and the financial expenses ratio was 1.12%, and the year-on-year financial expenses ratio was 1.12% and +0.37pcts year over year.
The three major businesses are progressing steadily, and new growth poles are gradually emerging
In terms of superconducting business, according to the company's annual report, the output value of superconducting wire surpassed 1 billion yuan for the first time in '23. The market share of superconducting wires developed and produced for MRI instruments continued to increase dramatically. Domestic nuclear fusion CRAFT projects maintained stable batch supply and stable product performance; in terms of high-end titanium alloys, the company's individual champion in the aviation titanium alloy bar manufacturing industry passed the review by the Ministry of Industry and Information Technology, and the dominant position in the aviation market was stable. At the same time, breakthroughs were made in the development of TiAl high-purity melting technology, etc. The development task is progressing smoothly; in terms of superalloys, the quality of the company's superalloys has increased, and production and sales have reached a record high year-on-year. The main brands have passed multiple “two-machine” models and product certifications for multiple users.
Risk warning: Demand for military aircraft and civil aviation helicopters falls short of expectations; progress of new projects falls short of expectations.