2023 results slightly below market expectations
The company announced its 2023 results: achieved operating income of 4.159 billion yuan, YoY -1.62%; realized net profit to mother of 752 million yuan, YoY -30.33%. Looking at a single quarter, 4Q23 achieved revenue of 1,071 million yuan, YoY +11.47%; realized net profit to mother of 170 million yuan, YoY -23.37%. The results were slightly lower than market expectations, mainly due to the slowdown in the pace of downstream demand due to the “14th Five-Year Plan” mid-term adjustments.
Development trends
Superconductivity and superalloys are growing rapidly, and product structural adjustments have affected the decline in gross margin. 1) In 2023, the company's titanium alloy/superconductive/superalloy achieved revenue of 25.05/9.85/474 million yuan, YoY -21.96%/+57.94%/+161.79%, respectively. Superconducting wires continue to develop superconducting materials and magnet technology for applications in semiconductors, photovoltaics, medicine, and electricity; high-performance superalloys have obtained supply qualifications for high-temperature alloy materials for many key models of aero engines and gas turbines, and mass supply has begun, and production and sales have reached record highs. 2) In 2023, the company's gross margin was 31.87%, down 7.58ppt from the previous year, mainly due to the increase in the revenue share of high-temperature alloy products with low gross margin, and the decline in gross margin due to the decline in titanium alloy sales.
R&D consolidates its leading edge, and forward-looking indicators indicate that the company is actively preparing goods for production. 1) The company's cost rate for the 2023 period was 14.45%, an increase of 2.75ppt over the previous year, including R&D investment of 329 million yuan and YoY +29.56%. We believe that continued investment in major topics and cutting-edge technology can guarantee the company's leading edge in advanced technology. 2) In terms of inventory, at the end of 2023, the company's inventory reached 3.342 billion yuan, YoY +40.43%. Among them, the production/inventory of high-end titanium alloy materials increased 15.05%/179.06% year on year, superconductive/superalloy production was actively expanded, and inventory volume increased by 40.12%/140.79% year on year, respectively. We believe that forward-looking indicators may indicate that the company is actively preparing goods and production continues to be full. As the pace of downstream customer demand recovers, the company's performance is expected to fully improve.
Aerospace titanium alloy leader. The superconducting and superalloy business can be expected to grow in the long term. 1) The company is one of the core suppliers of titanium alloys for next-generation aviation equipment in China. In 2023, the company steadily promoted the certification of new models, and its leading edge in the industry is stable. 2) The output value of the company's superconducting products exceeded 1 billion yuan for the first time in 2023. The developed and produced superconducting wire for MRI continued to increase dramatically in the global market share, and new superconducting wires for liquid-free helium/low-liquid helium MRI magnets were supplied in batches. 3) The company's main superalloy grades have passed multiple “two machine” models and multiple user product certifications, and the comprehensive performance match is good. We believe that as a leading aviation titanium alloy company, the company continues to explore the superconducting and superalloy markets, and can be expected to grow in the long term.
Profit forecasting and valuation
Taking into account the company's downstream demand and delivery pace, we lowered our 2024 net profit forecast by 27.9% to 901 million yuan, and introduced a 2025 net profit forecast of 1,172 billion yuan. The current stock price corresponds to 2024/2025 28.0/21.5 x P/E. We maintain our outperforming industry rating. Considering the recent decline in the industry valuation center, we lowered our target price by 18.54% to 48.52 yuan, corresponding to 35.0/26.9 XP/e in 2024/2025, with a potential increase of 24.89%.
risks
1) Downstream demand falls short of expectations; 2) Product delivery falls short of expectations.