Incident: The company released its 2023 annual report. In 2023, it achieved revenue of 4.159 billion yuan, -1.62% year on year; net profit to mother of 752 million yuan, or -30.33% year on year; net profit after deducting non-return to mother of 631 million yuan, or -35.06% year on year.

Titanium is under pressure, and superconducting products and superalloys maintain a high level of popularity. By product, high-end titanium alloy materials achieved revenue of 2,505 billion yuan, -21.96% YoY; superconducting products achieved revenue of 985 million yuan, +57.94% YoY; and superalloy materials achieved revenue of 474 million yuan, +161.79% YoY. During the reporting period, the company's gross profit margin was 31.87%, the year-on-year -7.58pct, the net profit margin was 18.38%, year-on-year -7.53pct; among them, the gross profit margin for titanium alloy materials was 34.41%, the year-on-year -8.88pct, superconducting products 34.39%, and the superalloy material was 15.86% year-on-year, +12.57pct year-on-year. Gross margin was affected by changes in the sales structure, and sales of high-value-added titanium alloy products were under pressure, but the profitability of superconducting products and superalloy materials increased.

The three core products have abundant production capacity, and many breakthroughs have been made in application fields. On the production capacity side, the output of titanium alloy materials was 10,700 tons, +15.05%, and obtained multiple supply qualifications in the fields of helicopters, COMAC, and gas turbines; superconducting products produced 0.17 million tons, +69.84%, and the global share of MRI instrument products increased dramatically; superalloy production was 0.23 million tons, +95.29%, sales volume 0.17 million tons, +126.68% year over year. Production and sales reached record highs year on year, and passed multiple “two aircraft” product certifications.

Aerospace materials continue to be added, and superconducting products have blossomed more. In 2023, the company achieved a breakthrough in superconducting wires, maintained stable batch supply for the nuclear fusion CRAFT project, and made many technological advances in the fields of medicine, photovoltaics, scientific research, etc. In the aerospace sector, superalloys and titanium alloy materials have obtained multiple product certifications and supply qualifications. The fund-raising project “Aerospace High Performance Metal Materials Industrialization Project” is expected to be produced by the end of 2024. It will mainly release superalloy and titanium alloy production capacity, which will help the company further increase its revenue.

Investment advice: The company's net profit for 24/25/26 is estimated to be 9.55/ 12.15/1,444 billion yuan YoY +26.9%/+27.3%/+18.9%. Maintain an “Overweight” rating.

Risk warning: Company orders fall short of expectations; project construction falls short of expectations; risk of fluctuations in raw material prices.