Event: On April 27, 2024, the company released the 2023 Annual Report & 2024 Quarterly Report:
1) Throughout 2023, the company achieved operating income of 883 million yuan, an increase of 2.26% over the previous year; achieved net profit of 127 million yuan, an increase of 24.50% over the previous year; and realized net profit of 112 million yuan after deduction, an increase of 23.42% over the previous year.
2) In the first quarter of 2024, the company achieved operating income of 243 million yuan, a year-on-year increase of 10.04%; achieved net profit of 31.17 million yuan, an increase of 3.30% over the previous year; realized net profit of 22.36 million yuan after deduction, a year-on-year decrease of 9.04%.
Comment:
1) The basic performance market is stable, and profitability has improved. ① In 2023, the company achieved a net profit margin of 14.34%, a year-on-year increase of 2.13pcts; a gross profit margin of 25.63%, an increase of 2.96pcts year-on-year. ② The company has formed two core competitive advantages of “high-quality continuous cast iron materials” and “one-stop service capability”, and the two advantages are synergetic to form a “two-wheel drive” model. On the material side, through the positive promotion of high-quality continuous cast iron, the overall cost of the processing side is effectively reduced; on the processing side, continuous cast iron is driven in reverse into more application fields, achieving high product performance and high customer viscosity, and collaboratively promoting the steady growth of the company's performance and continuous improvement in profitability.
2) Continuous casting ductile iron has excellent performance, and the field of “replacing steel with iron” continues to expand. ① Continuous cast ductile iron has low cost, low weight, low temperature rise, excellent wear reduction performance, and good cutting performance, so it has broad replacement space in various fields such as downstream air pressure, hydraulic power, wind power, automotive parts, agricultural machinery, vacuum pumps, heavy CNC lathes, and shipbuilding. ② The continuous cast iron production line owned by the company is independently developed, designed, and manufactured. There is no similar equipment supply in the market. Through long-term accumulation, the company has mastered five core process technologies, including ratio of raw materials, addition of trace elements, control of supercooling, structural design of graphite sleeves, and control of drawing speed and rhythm. Compared with the same industry, it has formed a unique competitive advantage and further strengthened technical barriers.
3) The vacuum pump rotor continues to discharge, and the research and development of reducer products has shown initial results. ① With the development of the semiconductor industry, demand for vacuum pumps and other equipment is growing in 2023. Vacuum pump rotors produced using the company's continuous castings have the advantages of high strength, good dynamic balance, energy saving and consumption reduction, etc., and the company's vacuum pump business continues to expand. ② In 2023, the company paid close attention to the development of products related to speed reducers. Currently, the company's technical team is working on the core components of the RV reducer:
Technological breakthroughs have been achieved in planetary mounts, planetary frame covers, cycloids, pin-tooth shells, eccentric shafts, etc., and small-batch supply has begun. The company's continuous casting products have also covered rigid wheels in harmonic speed reducers.
Maintaining a “buy” rating: According to the business split and profit forecasting models, we expect the company's operating income for 2024-2026 to be 10.09 (previous value: 11.87) /13.05 (previous value: 14.04) /1,521 billion yuan, respectively, net profit to mother of 1.54/1.83 billion yuan, and PE corresponding to the current stock price of 25.0/21.0/18.1 times, respectively. The company's growth is driven by technology. We are optimistic that the company will accelerate the release of performance in the future, driven by the continuous cast iron, precision machined parts, and precision reducer business, and maintain a “buy” rating.
Risk warning: risk of developing new products and technologies falling short of expectations; risk of production capacity release falling short of expectations; risk of large price fluctuations in the industrial chain; risk of untimely updating of information used in research reports; risk of deviations in industry size estimates, etc.