2023 results are in line with market expectations
The company announced its 2023 results: achieved operating income of 917 million yuan, YoY +36.45%; realized net profit to mother of 335 million yuan, YoY +0.48%. Looking at a single quarter, 4Q23 achieved revenue of 315 million yuan, YoY +30.59%; realized net profit of 65 million yuan, YoY -51.72%. The results are in line with market expectations. Among them, the parent company achieved net profit of 420 million yuan in 2023, YOY +25.73%. The relatively low consolidated net profit growth rate was mainly due to Shanghai Ruihuasheng's share payment of 188 million yuan.
Development trends
The main business of special functional materials is growing rapidly, and the business layout is actively expanding. 1) In 2023, the company achieved revenue of 887 million yuan, YoY +32.03%, and gross margin decreased slightly by 1.87ppt to 59.15%, benefiting from the continuous increase in downstream model tasks, the gradual increase in small-batch new product orders, and impressive growth in the specialty functional materials business; 2) Acoustic materials achieved revenue of 18.2 million yuan, actively expanding the field of high-end new materials for civil use; 3) Aerospace parts processing and manufacturing achieved revenue of 1.02 million yuan, relying on the active layout of stealth materials to expand the scope of business.
Focus on R&D investment to consolidate technological leadership, and share payments led to a short-term reduction in net interest rates. 1) In 2023, the company spent 74 million yuan on R&D, YoY +18.64%. The company continues to deepen cooperation with cutting-edge research teams from universities such as Western Technology University, Nanjing University, and the Chinese Academy of Sciences, to build its own supercomputing center to improve stealth composite performance. We believe that the company's focus on R&D investment is expected to continue to guarantee its cutting-edge position in technology. 2) The company's expense ratio for the 2023 period was 34.10%, +20.16ppt, of which the management fee ratio was +21.45ppt to 25.38% year over year, mainly due to shares generated by the holding subsidiary Shanghai Ruihuasheng and paying 188 million yuan.
The impressive increase in the volume of orders in hand is expected to continue, and the expansion of aviation development supporting business will consolidate its position in the industry. 1) According to the company's annual report, as of the end of March 2024, the parent company had orders of about 800 million yuan for special functional materials. Sufficient orders indicate that the main business is booming. 2) The company established an industrial center near the customer's residence through the establishment of Huaqin Hangfa, Shanghai Ruihuasheng, Shenyang Ruihuasheng, and Huaqin Technology Guiyang Company, and participated in Shenyang Ruite. We believe that the company actively integrates into the “small core, big collaboration” scientific research and production system of the Aviation Development Group, is deeply tied to downstream customers, and continues to expand its business scope, which is expected to further open up room for growth.
Profit forecasting and valuation
Taking into account the company's pace of mass production and delivery of downstream models, we lowered our 2024 net profit forecast by 19.8% to 485 million yuan, and introduced a net profit forecast of 614 million yuan for 2025. The current stock price corresponds to 35.7/28.3 x P/E 2024/2025. We maintained our outperforming industry rating and lowered our target price by 18.7% to 154.49 yuan at the same time, corresponding to 2024/2025 44.3/35.0 x P/E, with 23.9% upside compared to the current stock price.
risks
1) Downstream market demand and delivery fell short of expectations; 2) Increased industry competition.