Incident: The company released the 2023 annual report and the 2024 quarterly report performance forecast. In 23, it achieved revenue of 917 million yuan (+36.45%) and net profit of 335 million yuan (+0.48%). 24Q1 is expected to achieve revenue of 248 million yuan (+32.57%) and net profit to mother of 114 million yuan (+29.41%).

Annual revenue increased 36.45% year over year, and the profit side growth rate was slow due to subsidiary confirmation of share payment fees. In '23, the company achieved revenue of 917 million yuan, an increase of 36.45% over the previous year, mainly because customer model tasks continued to increase, and orders for small-batch trial products increased one after another. Among them, revenue from special functional materials products was 869 million yuan (+41.44%), which was the main source of the company's revenue growth. In '23, the company's net profit fell 22.19% year on year, and the net interest rate fell to 28.28% (-21.31pct). Mainly due to the company's gross margin falling 3.22pct to 57.78% in '23, while the holding subsidiary Shanghai Ruihuasheng confirmed share payment fees of 188 million yuan, leading to a sharp rise in the company's management expenses. Excluding the impact of share payments, the company's net profit for 23 years was 432 million yuan (+29.51%)

Inventories, fixed assets, construction in progress, and contract liabilities increased markedly. The company's inventory at the end of the period was 125 million yuan, an increase of 185.95% over the same period last year, mainly due to an increase in sales orders during the reporting period and an increase in raw materials, goods issued and contract performance costs. Fixed assets at the end of the period were 288 million yuan, an increase of 121.84% over the same period last year, mainly due to the purchase of plant, machinery and equipment. Projects under construction at the end of the period amounted to 457 million yuan, an increase of 133.49% over the same period last year, mainly due to investment in the construction of the new material park project and the construction of the Huaqin Airlines production line. The year-end contract debt of 14.72 million yuan increased by 287.73% over the same period last year, indicating that the company is full of orders and the forward-looking indicators are improving.

Actively layout all links in the aviation development industry chain, and the company has plenty of orders in hand. In July 2023, the company established a new holding subsidiary, Shanghai Ruihuasheng, to carry out the “R&D and industrialization project for ceramic-based composites for aero engines and their structural components”. Ceramic-based composites can withstand higher temperatures than traditional metal materials, and the material density is lower, which can significantly reduce engine weight and greatly increase the thrust-to-weight ratio. Therefore, ceramic-based composites are considered ideal materials for the hot-end structure of military and commercial aero engine core engines. On January 30, the company issued an action plan to “improve quality, increase efficiency and focus on return”. The company's chairman and directors and supervisors plan to increase their holdings by 10 to 20 million yuan, demonstrating the company's determination to protect investors' rights and interests. In addition, the company signed two major contracts in January, totaling 640 million yuan.

Considering fluctuations in downstream demand, we adjusted the company's sales expectations for products such as special functional materials, and forecast earnings per share for 2024-2025 of 3.76 yuan and 5.08 yuan (previous values were 4.36 and 5.95), respectively, and an additional EPS of 6.74 yuan for 26 years. According to comparable companies, a 24-year price-earnings ratio of 43 times, corresponding to a target price of 161.68 yuan, maintaining an increase in holdings rating.

Risk warning

The pricing of military goods poses the risk of fluctuations in profitability; the mass production progress of pre-developed products falls short of expectations