occurrences

On April 23, Steel Research Institute Gaona released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 3.408 billion yuan, an increase of 18% over the previous year, and achieved net profit of 319 million yuan to mother, a decrease of 5% over the previous year. 2024Q1, the company achieved revenue of 799 million yuan, a year-on-year increase of 29%, and achieved net profit of 95 million yuan to mother, an increase of 58% over the previous year.

reviews

1. The basic market of the aerospace business is stable, and revenue continues to grow rapidly. The company is one of the largest producers of high-end and new superalloy products in China. It has the annual production capacity of over 1,000 tons of superalloy master alloys for aerospace, as well as the production capacity of precision castings, deformed superalloy plate forgings, powder superalloys and ODS alloys for aerospace engines. More than 60% of the company's products target customers in the aerospace sector. In 2023, the company's revenue was 3.408 billion yuan, up 18% year on year. By product, cast alloy revenue was 2,297 million yuan, up 33% year on year; deformed alloy revenue was 717 million yuan, up 3% year on year; and revenue from new alloy was 351 million yuan, down 12% year on year.

2. In 2023, the company's gross margin increased by 1.54 pcts year-on-year, and business expansion led to an increase in sales and management expenses. In 2023, the company's gross sales margin was 29.22%, up 1.54 pcts year on year. Among them, the gross margins of the cast alloy, deformed alloy and new alloy business were 31.72%, 15.67%, and 38.51%, respectively, +5.44pcts/-3.84pcts/-7.53pcts, respectively. 2024Q1, the company's gross sales margin was 33.16%, up 4.61 pcts year-on-year.

In 2023, the company's management expense ratio was 7.36%, up 0.92 pcts year on year, mainly due to the gradual commissioning of the project, which led to an increase in related fixed costs; the sales expense ratio was 1.70%, up 0.57 pcts year on year, mainly due to the increase in sales scale and foreign market development expenses; the financial expense ratio was 0.67%, a decrease of 0.22 pcts year on year; and the R&D expense ratio was 5.07%, down 0.01pcts year on year.

3. The petrochemical product market expansion and the company's business development have achieved remarkable results. In 2023, the company's subsidiary Xinlitong's performance increased significantly. With castings in the petrochemical, metallurgical and other industries as its main product, Xinlitong achieved revenue of 1.01 billion yuan in 2023, an increase of 39% over the previous year, and achieved net profit of 181 million yuan, an increase of 251% over the previous year. The company's business expanded in multiple directions. In 2022, the company established a wholly-owned subsidiary, Sichuan Gaona, a holding subsidiary with Aviation ****'an Steel Research, and Liaoning Gaona in 2023. In 2023, Xi'an Steel Research achieved revenue of 108 million yuan and net profit of 20.85 million yuan. Continued business expansion opens up the company's growth ceiling, and rapid long-term development can be expected.

4. Promote the transformation of the company and have broad room for growth. The company determines that the next 3-5 years will be a critical period for the development of the industry. The company will strive to achieve transformation within 3-5 years: the market will transform from domestic to domestic and international markets, products will gradually transform from raw materials to parts, and some products will expand from aero engines to the aviation, energy, and petrochemical fields. In 2024, the company will focus on the military market for aerospace and gas engine forging castings, vigorously expand the civil goods market for nuclear power, aircraft, petrochemicals, ships, etc., further explore the international petrochemical and international aeronautical forging and casting markets, and collaborate to develop new products in the market.

5. We expect the company's net profit to be 418, 554, and 728 million yuan respectively in 2024-2026, corresponding to the current share price PE of 33, 25, and 19 times, respectively, to maintain a “buy” rating.

Risk warning

The increase in domestic superalloy self-sufficiency rate fell short of expectations; the company's business expansion fell short of expectations; the rise in raw material prices and the price reduction of superalloy products exceeded expectations, etc.