Incident: The company released its 2023 annual report & 2024 quarterly report on April 29, achieving revenue of 2.10 billion yuan, YoY +44.7%; net profit to mother of 186 million yuan, YoY +1.2%; deducting non-net profit of 159 million yuan, YoY -5.7%. 1Q24 achieved revenue of 580 million yuan, YoY +3.2%, net profit of 56 million yuan, YoY +10.4%, deducted non-net profit of 52 million yuan, YoY +5.4%. The performance was in line with market expectations. The company's revenue growth in '23 mainly came from the aviation and gas turbine sectors. Our comprehensive review is as follows:

Revenue surged 45% year over year in '23; equity payments affected apparent profit. 1) Looking at a single quarter: 4Q23 achieved revenue of 390 million yuan, YoY -15.3%; net profit to mother of 0.19 million yuan, YoY -62.4%; deducted non-net profit of 205 million yuan, YoY -88.6%. The steady growth in 1Q24's performance was mainly due to increased demand in the international aviation market and a 98.7% year-on-year increase in foreign trade business. 2) Profitability: In 2023, gross margin decreased 4.9ppt to 27.2% year over year; net margin decreased by 3.9 ppt to 8.8% year over year. 4Q23 gross margin decreased by 2.8ppt to 25.5% yoy; net margin decreased 6.2ppt to 4.4% yoy. 1Q24 gross margin decreased by 3.3 ppt to 26.2% year over year, and net margin increased 0.6 ppt to 9.7% year over year. In '23, the share payment fee was 83 million yuan, which affected apparent profit. Excluding the impact of share payment fees, net profit to mother was 260 million yuan, an increase of 16.5% over the previous year.

In 23 years, many fields have achieved relatively rapid growth; the foreign trade market is growing strongly. By product, 2023:

1) Aviation forgings achieved revenue of 1.50 billion yuan, YoY +38.3%, accounting for a year-on-year decrease of 1.7ppt to 74.7% of total revenue, and a year-on-year decrease of 4.0pt to 29.2%; 2) Aerospace forgings achieved revenue of 0.8 billion yuan, YoY -16.8%, accounting for a year-on-year decrease of 2.8ppt to 4.1% of total revenue; 3) Energy forgings achieved revenue of 240 million yuan, YoY +37.8%, accounting for a year-on-year decrease of 0.3 ppt to 11.9% in total revenue, gross profit margin The year-on-year decrease was 5.5ppt to 29.2%. 4) Turbine forgings achieved revenue of 170 million yuan, YoY +243.4%, accounting for a year-on-year increase of 4.9ppt to 8.3% of total revenue, and a year-on-year decrease of 4.0ppt to 17.8% in gross margin. By market, both domestic and foreign markets achieved positive growth. Domestic main business revenue increased 26.8% year on year to 1.40 billion yuan, overseas main business revenue increased 92.3% year on year to 610 million yuan, 1Q24 foreign trade business continued its high growth trend (98.7% year on year), and the company's growth momentum in overseas markets was strong.

Delan Aerospace has entered a period of rapid growth; orders are plentiful and long-term growth is safe. In 2023, the wholly-owned subsidiary Deland Aerospace entered the fast track of development. Revenue in '23 increased sharply by 695% year-on-year to 330 million yuan, and net profit turned a loss to a profit of 3.1 million yuan (-17.15 million yuan in '22). In terms of orders, as of the end of 2023, the company had orders of 2,603 billion yuan, an increase of 28.5% over the previous year. Furthermore, according to the long-term agreement already signed between the company and the customer, combined with the production schedule confirmed with the customer, the amount of orders in hand during the long-term cooperation period estimated according to the corresponding price is about 2,265 billion yuan. Overall, as of the end of '23, the company's total on-hand orders were about 4.868 billion yuan.

Investment advice: The company is one of the leading circular forging segments in the aerospace sector in China. It has long benefited from “two aircraft” and high demand for new energy. We are optimistic about the company's long-term development potential. The estimated net profit for 2024-2026 will be $330 million, $430 million, and 550 million yuan, respectively, with a corresponding PE of 16x/12x/9x. Considering the gradual release of the company's production capacity and the medium- to long-term boom in many downstream industries, we maintain a “recommended” rating.

Risk warning: downstream demand falls short of expectations; product price reduction; fluctuation in raw material prices, etc.