Incidents:
The company released its 2023 annual report: The company achieved operating income of 2,803 billion yuan in 2023, an increase of 20.01% over the previous year; realized net profit of 576 million yuan, an increase of 30.23% over the previous year. The company achieved operating income of 608 million yuan in 2023Q4, an increase of 18.19% over the previous year, and realized net profit of 73 million yuan, an increase of 82.42% over the previous year.
Comment:
The company's operating performance improved steadily and exceeded the annual operating target. The company achieved rapid growth in revenue and net profit in 2023, mainly due to continued rapid growth in aviation market demand and rapid growth in customer order demand. By product, 1) 2023 basic materials revenue of 1,323 million yuan (+19.79%), gross profit margin of 31.53% (-1.25pct); 2) aviation finished parts revenue of 1,238 million yuan (+23.87%), gross profit margin 32.47% (-5.80pct); 3) non-aviation finished parts revenue of 124 million yuan (-15.48%), gross profit margin 15.24% (+2.46pct); 4) processing services revenue of 80 million yuan (+27.76%), gross profit margin of 13.41% (+ 27.76%) 3.93pct). By region, 1) domestic revenue of 2,576 billion yuan (+18.71%) in 2023, gross profit margin of 31.60% (-2.48pct); 2) overseas revenue of 190 million yuan (+31.83%), gross profit margin 18.46% (-2.30pct), overseas export orders grew rapidly.
There was a slight decline in gross margin and an increase in profitability. On the gross profit side, the company's gross margin was 31.55% in '23, -2.24pct year on year, mainly affected by changes in military tax exemption policies. On the cost side, the company's sales/management/R&D/finance expenses rate in '23 was 0.53%/2.92%/7.27%/-1.80%, and the year-on-year change was -0.04/+0.00/-0.74/-1.16pct. The total cost rate for the period was 8.93%, or -1.93pct. On the profit side, the company's net interest rate to mother in '23 was 20.56%, +1.61pct year on year. The company's profitability improved, mainly due to the decline in the expense ratio during the period, and the total decrease in the company's asset and credit impairment losses of 46.42 million yuan year on year.
Related transactions are expected to show strong downstream demand from aviation development. According to the “Notice on Expected Daily Related Transactions in 2024”, the company expects a total amount of 1,054 billion yuan (actual accrued value of 846 million yuan in 2023) for sales of products, provision of labor and other services within the aviation development system in 2024, an increase of 24.62% over the previous year, highlighting strong downstream demand for aviation development.
Investment advice: Aviation Materials Co., Ltd. is a comprehensive leading enterprise in the field of aviation materials. It has been deeply involved in the four major business fields for many years and has a first-mover advantage. The construction of fund-raising projects guarantees the company's subsequent performance growth. We forecast that the company's revenue for 24-26 will be $34.80/42.52/5,077 billion yuan, and net profit to mother will be $733/9.37/1,174 million yuan respectively, corresponding EPS of 1.63/2.08/2.61 yuan, and PE33.80/26.43/21.11X, maintaining a “buy” rating.
Risk warning: Demand is declining, fund-raising and construction falls short of expectations, and performance and valuation judgments fall short of expectations