Key points of investment
The net profit of the company's 2023 subsidiary, Beifang Hongyang, surged 484 million yuan over the same period of the previous year. The company released its 2023 annual report, achieving operating income of 6.1 billion yuan, a year-on-year increase of 830 million yuan, a year-on-year increase of 1.1%; realized net profit without return to mother of 770 million yuan, a year-on-year decrease of 0.56%; on a quarterly basis, the company achieved net profit of -34 million yuan, 140 million yuan, 100 million yuan and 623 million yuan (year-on-year increase of 685 million yuan in the fourth quarter).
By product, superhard materials and their products reached 2.3 billion yuan, accounting for 38% of revenue; revenue of superhard materials decreased 14% year on year; special equipment reached 3.39 billion yuan, accounting for 55% of revenue, and special equipment revenue decreased 5% year on year. According to the subsidiary companies, Zhongnan Diamond achieved net profit of 530 million yuan, a year-on-year decrease of 45%; North Hongyang achieved operating income of 1,569 million yuan, up 242.44% from the same period of the previous year, and realized net profit of 335 million yuan, an increase of 484 million yuan over the same period last year. This is mainly due to the significant increase in orders for products delivered by North Hongyang compared to the same period last year, and the price review results obtained by signing a provisional pricing contract earlier to deliver products. North Hongyang adjusted revenue and costs during the reporting period. In terms of special equipment, the company has vigorously promoted scientific and technological innovation to achieve new results, actively promoted the implementation of major strategic deployments, and continued to take firm steps to expand, improve and strengthen. According to the official WeChat account of Northern Hongyang, the company has already conducted research and production of key batch production models of equipment, and is expected to benefit from intelligent ammunition releases in the future and create a new growth point for the company's performance.
In 2023, the company's overall gross profit margin was 32%, up 3.38pct year on year; the weighted average ROE was 8.2%, a year-on-year decrease of 0.56pct. The company's management expenses were 524 million yuan, down 9.62% year on year; financial expenses - 83.71 million yuan, up 8.99 million yuan; R&D expenses were 478 million yuan, up 23% year on year.
Superhard materials are the leader, benefiting from the amount of intelligent ammunition released. Special equipment is expected to turn a loss into a new performance growth point. The core logic is: the special equipment business is expected to become a new growth point; cultivating diamonds and diamonds is growing steadily.
(1) Special equipment: As the backbone equipment of the Army, long-range rockets are booming; rockets, as consumables, will benefit from the growth of the long-range fire industry chain. Zhongbing Red Arrow products include products such as large-caliber shells, rockets, missiles, and submunitions. They are the only ammunition marketing platform under the Ordnance Group. They are also scarce ammunition assemblies and smart ammunition targets in the entire market. Beifang Hongyang, a subsidiary of the company, has achieved profits, indicating that the price of the company's core products has been approved, internal production and operation are continuously improved, and long-term profits are expected to be achieved in the future. At the same time, the company has undertaken research and production of key mass-produced equipment, which is expected to benefit from large quantities of intelligent ammunition.
(2) As one of the world's leaders in cultivating diamonds, the company's press expansion, equipment upgrades and process improvements all promote release; the company is also a leading industrial diamond leader, benefiting from a sharp increase in demand for photovoltaic diamond wire.
(3) Long-range rockets are the core weapon of the Army, and domestic demand and foreign trade are growing together: the Russian-Ukrainian war highlights the fact that long-range fire has become a powerful weapon of war. In the future, smart ammunition will be in high demand. China's Yuanhua is “good quality and cheap,” and foreign trade is expected to usher in development.
Profit forecasting and valuation
The company is expected to benefit from intelligent ammunition release in the future, special equipment is expected to grow steadily, and the superhard materials industry is expected to achieve 17%/24%/22% net profit from 2024-2026, and PE is 21/17/14 times in 2024-2026, maintaining the “increase” rating.
Risk warning: Cultivate changes in diamond competition patterns and profits, military products falling short of expectations, and major safety incidents.