Key points of investment:
The company announced the release of the 2023 Annual Report and the 2024 Quarterly Report, and the results were in line with market expectations. In 2023, the company achieved revenue of 7.652 billion yuan, down 15.96% year on year, net profit to mother of 306 million yuan, down 49.82% year on year; 23Q4 achieved net profit of 99 million yuan, up 212% year on year, up 15% month on month; 24Q1 achieved net profit of 61 million yuan, up 20% year on year and down 39% month on month. The company's 2023 annual report and 2024 quarterly results are in line with market expectations.
Profits in the company's main magnesium alloy sector declined in 2023, mainly due to falling magnesium prices; however, profits in the magnesium alloy deep processing sector increased year-on-year. In 2023, the company's magnesium alloy product revenue was about 2,528 billion yuan, down 23.58% year on year, and gross margin also fell to 18.1% from 29.1% in '22. Our analysis suggests that the decline in performance was mainly affected by the decline in magnesium prices:
According to Wind data, the average price of magnesium ingots in 2023 was about 23,700 yuan/ton, down 27% year on year. Furthermore, in the field of magnesium alloy deep processing, the company achieved revenue of 1,055 billion yuan, which was basically the same as the previous year. At the same time, gross margin increased from 8.0% in '22 to 12.4%, and ultimately the gross profit of the deep processing business grew.
Management expenses and financial expenses increased, and sales expenses and R&D expenses decreased year-on-year. In 2023, the company's management expenses were 169 million yuan, up 20.86% year on year, mainly due to an increase in depreciation and amortization; sales expenses of 0.22 million yuan, down 6.15% year on year, mainly a decrease in office expenses; and financial expenses of 99 million yuan, up 28.96% year on year, mainly due to a decrease in exchange earnings. In addition, R&D investment was 352 million yuan, a year-on-year decrease of 11.14%.
The company continues to invest in the field of deep processing of magnesium alloys, and has made some progress in product development and customer expansion. In the current context of falling magnesium-aluminum price ratios, the lightweight application of magnesium alloys is expected to accelerate. According to the company's announcement, in July 2023, the subsidiary Nanjing Precision and NIO Auto reached a cooperation on magnesium alloy seat mounting bracket assembly; in November 2023, the subsidiary Tianjin Precision and Ningbo Jifeng Co., Ltd. reached a cooperation to undertake magnesium alloy interior brackets for various types of passenger cars; in December 2023, the subsidiary Chongqing Boao and BYD reached cooperation to develop and produce magnesium alloy CCB products. Therefore, from a comprehensive perspective, the company and downstream car companies have reached cooperation in several fields of magnesium alloy parts, and the deep processing field is expected to become a profit growth point in the future.
Investment analysis: Considering the impact of the decline in magnesium prices, we lowered the average price of the company's magnesium alloy products from 222/226,000 yuan to 213/215,000 yuan, and based on model calculations, lowered the 24-25 net profit forecast to 4.54 billion yuan (the original forecast was 794/1.24 billion yuan), and added a 26-year net profit forecast of 917 million yuan, corresponding to 24-26 PE 28/19/14 times, respectively. Comparable companies selected Xingyuan Zhuo Magnesium and Wanfeng Aowei, which also belong to the magnesium alloy deep processing industry. The average PE for 24-26 was 35/27/20 times, respectively. Therefore, the company's valuation level is relatively low, and considering that after projects such as Qingyang are put into operation, the company's magnesium alloy production capacity is expected to continue to be released. At the same time, the deep processing business benefits from the accelerated application of magnesium alloys in the field of automobile weight reduction, and there is plenty of room for long-term growth, so it maintains a “gain” rating.
Risk warning: The commissioning progress of projects under construction fell short of expectations; the progress of vehicle weight reduction fell short of expectations.