Incident: The company disclosed its 2023 annual report. Revenue and net profit due to mother increased, and net profit after deducting non-return to mother declined slightly. The company's revenue in 2023 was 1,085 billion yuan, +24.42% year on year; net profit to mother was 82.5276 million yuan, +3.15% year over year; net profit after deducting non-return to mother was 74.417 million yuan, -4.49% year over year. The company's revenue and net profit to mother increased in 2023, and net profit after deducting non-return to mother declined slightly.
The company's product production and sales volume increased in 2023, and the product structure was optimized. The company produced 5731.03 tons of superalloy materials, +30.34% year over year; sales volume was 6027.55 tons, +13.68% year over year. In 2023, the company continued to increase investment in precision machining equipment and personnel to provide finished castings and forgings delivery services for high-end customers such as GE, Emerson/Fisher, Flowserve, Schumberger, etc., greatly enhancing the value of the company's products and enhancing the company's profitability. In 2023, the company's castings, forgings, welding powder, cobalt-based and nickel-based high-end materials accounted for 42.9%, an increase of 6.17% over the previous year. Sales to high-end customers in overseas markets have also maintained steady growth.
The demand for civil superalloys in China has broad prospects. China's high-temperature corrosion-resistant alloy industry is growing rapidly. In addition to being widely used in military and aerospace, civil superalloys are widely used in many fields such as steam turbines, petroleum, chemicals, nuclear power, new energy, automobiles, ships, and core components of high-end equipment. The number of workers in China's superalloy industry is small. Although enterprises have developed rapidly in recent years, they still have a large gap between supply and demand. According to data from Beijing Yanjing Bizhi, China's superalloy market reached about 22 billion yuan in 2021, an increase of 15.8% over the previous year. It is predicted that the size of China's superalloy market will rise to more than 30 billion yuan by 2025. In the future, as the production technology of China's superalloy manufacturers continues to improve, high-end superalloy products will gradually reduce their dependence on imports, and the development prospects of the superalloy industry will be broader.
Profits of the subsidiary Jiangsu Xinzhongzhou are under pressure, and the release of future production capacity in Phase II and Phase III is expected to contribute to profits. Jiangsu Xinzhongzhou's revenue in 2023 was 6353.244 million yuan, an increase of 185.97.48 million yuan from 44.93456 million yuan in 2022; operating profit of 6.688 million yuan, a decrease of 15.9588 million yuan from 22.638 million yuan in 2022; net profit of 7.7463 million yuan, a decrease of 13.213,600 yuan from 20.959 million yuan in the previous year. The main reasons for the decline in profits are: 1) some large orders were given some concessions in sales prices; 2) Jiangsu Xinzhongzhou's preparation volume of semi-finished products for intermediate processes increased, while market prices for major metal materials such as nickel and cobalt showed a downward trend in 2023, leading to a decline in gross profit; 3) Jiangsu Xinzhongzhou Phase II and Phase III projects invested on a large scale, increasing operating costs. The company's Jiangsu Xinzhongzhou Phase II fund-raising project has completed the main construction of the project. The equipment is currently being installed and commissioned, and some of the processes have already begun trial production. The R&D building of the Phase III project is being renovated, the construction of the main plant of the workshop has been completed, and some equipment is also entering the factory one after another to carry out installation and debugging.
Profit forecast: In the future, as industry demand grows, the company's newly built production capacity will continue to be released. The company's 2024-2026 revenue is expected to be 13.41/16.23/18.45, respectively, and net profit to mother will be 1.10/1.53/198 million yuan, corresponding to PE 18.90/13.62/10.54, maintaining the “buy” rating.
Risk warning: The company's production capacity construction progress fell short of expectations; the price of raw materials for the company's products fell beyond expectations; the company's market development progress fell short of expectations.