Incident: The company released its 2023 annual report and performance forecast for the first quarter of 2024. The company achieved revenue of 920 million yuan in 2023, +36.5% year over year; net profit to mother was 340 million yuan, +0.5% year over year; the reason for the small profit increase was mainly due to the holding subsidiary Shanghai Ruihuasheng New Materials Co., Ltd. confirmed share payment fees. The company expects to achieve revenue of 250 million yuan in 2024Q1, +32.6% year on year; net profit to mother is expected to be 110 million yuan, +29.4% year over year, mainly due to continued increase in the company's model tasks and continued growth in downstream market demand.
Comment:
The traditional business continues to expand, and the order pace is improving: the company achieved revenue of 890 million yuan in 2023, +32.0% year over year, gross profit margin of 59.2%, -1.87 pcts year on year. Since October '23, the company has successively disclosed: 1) the company's 4 brands of stealth material products have reached important application points and entered the small-batch production stage; 2) two major daily operating contracts, with contract amounts of about 310 million yuan and 330 million yuan respectively. By the end of March 2024, the company had ongoing orders for special functional materials of about 800 million yuan.
The new business is gradually developing steadily, and the future can be expected: based on stealth materials and camouflage materials, the company lays out intelligent processing and manufacturing of components, carbon fiber resin composites, ceramic-based composites, etc. in the aerospace industry, especially in the aero engine field, and has gradually grown into a core supplier for China's aero engine industry. In the civil sector, based on high-end new materials for civilian use, a series of civilian products such as acoustic metamaterials, heavy anticorrosive materials, high-efficiency heat-resistant materials, and electromagnetic shielding materials have been further developed, and their application in key national industrial fields is being vigorously expanded.
Profit forecasting, valuation and ratings: We continue to be optimistic about Huaqin Technology's leading position in the field of aviation special functional materials. The company's related business is expected to benefit deeply and in the long term from the maintenance requirements brought about by the launch and modification of China's advanced fighter jets and the increase in the number of fighter jets in stock. At the same time, with the gradual application of next-generation materials, the company has a broad early layout and is expected to continue to benefit from subsequent applications. Considering fluctuations in the pace of demand from downstream customers in special fields, we expect the 2024-2026 net profit of the company to return to mother of 50,000/6.6/8.2 billion yuan (-19.9%/-18.3%/increase from the previous one), corresponding EPS of about 3.59/4.77/5.86 yuan, respectively. The current stock price corresponds to PE of about 35x/26x/21x, respectively, to maintain a “buy” rating.
Risk warning: risk of aircraft engine volume falling short of expectations; risk of the company's production capacity falling short of expectations; risk of raw material prices rising more than expected.