Description of the event

The company released its 2023 annual report. 23A achieved revenue of 917 million yuan, up 36.45% year on year; net profit of 335 million yuan, up 0.48% year on year; net profit without return to mother of 385 million, up 23.23% year on year; 23Q4 achieved revenue of 315 million, up 30.59% year on year, up 43.32% month on month; net profit due to mother of 65 million, down 51.72% year on year and 25.75% month on month; net profit without return to mother was 127 million, down 2.58% year on month, month on month increase 51.61% The company also released the 2024 quarterly report forecast. In 24Q1, it is expected to achieve revenue of 248 million yuan, an increase of 32.57% over the previous year; net profit due to mother of 114 million, an increase of 29.41% year on year; net profit after deducting non-return to mother of 111 million, an increase of 28.36% year on year.

Incident comments

Mass production tasks and orders for small-batch trial production of new products are strong, and superimposed business development has led to medium- to high-speed revenue growth. The company's revenue growth rate in a single quarter was over 30% for five consecutive quarters from 23Q1 to 24Q1. Mainly, batch production tasks for major customer models continued to increase, and orders for new products to be tested in small batches of new models increased one after another. At the same time, new businesses such as aviation parts processing and acoustic superstructural materials, which the company had laid out in the early stages, also gradually contributed revenue. In 2023, the company's special functional material products achieved revenue of 869 million, an increase of 41.44% year on year, and special functional materials technology service revenue of 18.0671 million, a year-on-year decrease of 68.58% (the technical service business is mainly customized according to customer needs, so there is a large fluctuation); acoustic metastructural materials and acoustic instruments began product sales, achieving revenue of 15.1892 million, and photoacoustic inspection and detection services achieved revenue of 30.84 million; aerospace parts processing and manufacturing achieved revenue of 11.088 million.

Due to a sharp increase in one-time share payments and losses during the construction period of subsidiaries, etc., there was a slight increase in apparent performance in '23. The company achieved net profit of 335 million yuan in 2023, a year-on-year increase of 0.48%, and a single Q4 performance of 65 million, a year-on-year decrease of 51.72%.

The company's gross margin was relatively stable throughout the year, and the apparent net profit in Q4 decreased sharply year-on-year due to a sharp increase in management expenses. In 2023, the company and Shanghai Ruijuxiang Enterprise Management Consulting Partnership and Tunan Co., Ltd. jointly funded the establishment of Shanghai Ruihuasheng New Materials Co., Ltd., and Shanghai Ruijuxiang Enterprise Management Consulting Partnership invested 12 million yuan (12 million included in registered capital, that is, 1 yuan/each registered capital). The remaining participants paid about 188 million yuan per registered capital. At the same time, the newly established holding subsidiary is still in the production capacity construction period, causing losses of about 22 million yuan during the construction period, which also had an impact on the company's profits.

The transfer of new brands to small batches is smooth, production capacity construction continues to advance, and there is a high degree of certainty that superimposed orders are sufficient and growth is high. In October '23, the company announced that 4 stealth brands had reached important application nodes and entered the small-batch production stage. The company is rich in brand reserves, and it is expected that it will enter the small-batch and batch production stage one after another in the future, driving the company's revenue to continue to grow. In terms of production capacity, the company's total investment in the new material park fund-raising project accounts for 39.30% of the budget, and some equipment is being tested and fixed. In terms of orders, the company announced two large-scale contracts for batch production projects on January 17 and 30, 2024, respectively, with amounts of 310 million yuan and 332 million yuan (all tax included), totaling 642 million yuan. The total amount of the company's large-scale contract for mass production of stealth materials in '23 was 844 million. By the end of '23, it had fulfilled 705 million contracts, with a remaining $140 million outstanding. By the end of March 2024, the parent company had about 800 million orders for special functional materials, etc.

Profit forecast and valuation: The company's 24-26 performance is expected to be 5.2/67/870 million, yoy +56%/29%/30%. The PE corresponding to the current market value is 34/27/21 times, respectively. The possibility of model batch production exceeding expectations and raising the profit forecast is not ruled out.

Risk warning

1. The risk of revenue fluctuations due to the pace of order placement;

2. The risk that the profit level will decline due to product price reduction;