The company's 2023 results are in line with market expectations
The company announced 2023 results: revenue of 2,803 billion yuan, +20.01% year over year; net profit to mother of 576 million yuan, +30.23% year over year; deducted non-net profit of 566 million yuan, +27.43% year over year. Looking at a single quarter, 4Q23's revenue was 608 million yuan, +18.19% year over month, and -3 0.67% month on month; net profit to mother was 73 million yuan, +82.42% year over year, and -64.60% month on month. The company's performance is in line with market expectations.
Development trends
The main business performance grew steadily, and the increase in cost control capabilities led to an increase in net interest rates. 1) In 2023, the two main businesses accounted for 91.38% of the total revenue of basic materials and aeronautical components, with revenue of 1,323/1,238 billion yuan respectively, or +19.79%/23.87% year-on-year, with a steady increase in revenue. 2) 2023 gross sales margin and net margin year-on-year -2.24pp/+1.61ppt to 31.55%/20.56%. Gross sales margin declined slightly, due to changes in the product delivery structure and tax exemption policies; net profit margin increased year-on-year, mainly due to the company's continuous strengthening of cost control and improving the level of lean management. The cost ratio for the period was -1.94ppt to 8.92% year over year.
Focus on key projects to continue to increase investment in R&D, and accelerate repayments to promote a significant increase in operating cash flow. 1) In 2023, the company's R&D expenses were +8.97% to 204 million yuan. The company focused on cutting-edge research on key technologies, laying a solid foundation for speeding up the improvement of industrial support capabilities. 2) Net cash flow from operating activities in 2023 was $265 million, +54.62% year-on-year, mainly due to the company's accelerated repayment and planned payments. 3) The balance of projects under construction at the end of 2023 reached 108 million yuan, +347.43% compared to the beginning of the year. The launch of fund-raising projects helped ease capacity constraints and lay the foundation for growth.
Related transaction volume indicates a continued boom in downstream demand, and fund-raising projects enhance core competitiveness. 1) The company announced that it expects to sell products, provide labor and other services to related parties in 2024 totaling 1,054 billion yuan, an increase of 20.12% and 23.44%, respectively, compared with the estimated amount and actual amount generated in 2023, which indicates a continued trend in downstream demand. 2) According to the company's announcement, the company's July 2023 IPO raised a total of 7.1 billion yuan, of which 3.6 billion yuan was used for the construction of projects such as elastomer materials, aeronautical transparent parts, windshields for large aircraft, high-temperature master alloys, and titanium alloy parts. We believe it is expected to ease the company's production capacity bottlenecks and further enhance the company's core competitiveness.
Profit forecasting and valuation
Taking into account downstream demand and the company's product delivery pace, we lowered our 2024 net profit forecast by 7.6% to 716 million yuan, and introduced a net profit forecast of 868 million yuan for 2025. The current stock price corresponds to 2024/2025 34.4/28.3x P/E. We maintained our outperforming industry rating, taking into account the recent decline in the industry valuation center, and lowered the target price by 10.3% to 69.48 yuan, corresponding to 43.7/36.0x P/E in 2024/2025, with a potential increase of 27.0%.
risks
1) Macroeconomic environment and policy risks; 2) Risk of orders and delivery falling short of expectations.