Incidents:

On April 27, 2024, Sirui New Materials released its 2023 annual report and 2024 quarterly report: in 2023, the company achieved operating income of 1,180 billion yuan, an increase of 18.71%; realized net profit attributable to shareholders of listed companies of 98 million yuan, an increase of 26.04%; and a weighted average return on net assets was 9.58%, an increase of 0.66 percentage points over the previous year. The gross profit margin on sales was 20.99%, up 2.10 percentage points from the previous year; the net profit margin was 8.57%, up 0.81 percentage points from the previous year.

Among them, the company achieved revenue of 311 million yuan in 2023Q4, +12.70% year on month; realized net profit of 30 million yuan, +52.14% year on year, and +89.20% month on month; ROE was 2.87%, up 0.87 percentage points year on year and 1.32 percentage points month on month. The gross profit margin on sales was 23.10%, up 3.71 percentage points from the previous year and 3.08 percentage points from the previous year; the net profit margin was 10.53%, up 3.46 percentage points from the previous year, and 5.15 percentage points from the previous month.

The company achieved revenue of 287 million yuan in 2024 Q1, +14.26% year over month; realized net profit of 0.25 million yuan, +13.49% year on year, -17.86% month on month; ROE was 2.32%, up 0.17 percentage points year on year, down 0.54 percentage points from month to month. The gross profit margin on sales was 23.17%, up 0.86 percentage points year on year, up 0.07 percentage points month on month; net sales margin was 8.61%, up 0.21 percentage points year on year, down 1.91 percentage points month on month.

Investment highlights:

Rapid development in many fields. The company's 2023 performance increased year-on-year, and the company achieved operating income of 1,180 billion yuan in 2023, an increase of 18.71% over the previous year; realized net profit attributable to shareholders of listed companies of 98 million yuan, an increase of 26.04% over the previous year. In 2023, the company achieved gross profit of 932 million yuan, +31.93% year-on-year. The year-on-year increase in gross profit mainly benefited from the company's active development of international markets, a sharp increase in revenue from export products, and rapid growth in high-strength, high-conductivity copper alloy materials and products and high-performance metal chromium powder businesses with the gradual release of production capacity in fund-raising projects. By sector, revenue from high-strength and high-conductivity copper alloy materials and products was 534 million yuan, +20.83% year on year, and with the increase in export revenue share and product structure optimization, the gross margin of products in the sector increased 2.54 percentage points to 18.33%; revenue of medium and high voltage electrical contact materials and products was 281 million yuan, +7.52% year on year; revenue of high-performance metal chrome powder was 60 million yuan, +25.34% year on year; and as products gradually achieved batch supply, unit costs gradually decreased. Gross margin increased 3.85 percentage points to 23.24%.

Expense optimization during the period. In 2023, the company's sales expenses rate was 1.83%, an increase of 0.28 percentage points over the previous year, mainly due to the company's active market development and an increase in salary, travel expenses, hospitality, etc. for business personnel; the management expenses ratio was 9.80%, down 0.38 percentage points from the previous year; and the financial expenses ratio was 0.94%, down 0.45 percentage points from the previous year.

First-quarter results increased year-on-year, optimistic about the sustainability of full-year results

The company achieved revenue of 287 million yuan in 2024 Q1, +14.26% year over month, and -7.54% month on month; realized net profit to mother of 0.25 million yuan, +13.49% year on year, -17.86% month on month. With the increase in downstream demand and the release of new production capacity, the company's performance increased year-on-year. In terms of expenses for the period, 2024Q1, the company's sales expenses ratio was 1.60%, down 0.43 percentage points from the previous year; the management expenses ratio was 10.27%, up 0.17 percentage points from the previous year, down 0.41 percentage points from the previous month; and the financial expenses ratio was 1.78%, up 0.56 percentage points from the previous year and 0.69 percentage points from the previous month. Looking ahead to the whole year, against the backdrop of high demand in new expansion areas, we are optimistic that the annual performance will continue to grow as production capacity is gradually released in various sectors of the company.

Traditional main businesses are growing steadily, and emerging businesses are welcoming a boom window

The company focuses on the preparation technology of copper-based specialty materials to expand emerging downstream fields. Medium- and high-voltage electrical contact materials and products and high-strength high-conductivity copper alloy materials and products are the company's traditional dominant business. They solve the problem of import substitution, and are sold back overseas to achieve leading global market share in the field of segmented materials, and are expected to continue to grow steadily in the future. New expansion areas welcome a boom window, and sector performance is expected to grow rapidly. Among them, the newly expanded liquid rocket engine thrust interior wall benefited from the beginning of a new commercial aerospace journey; CT&DR ball tube components had huge space in the context of increased localization rate of downstream tubes; high-performance chromium powder benefited from the expansion of production by superalloy companies; and optical module chip base materials benefited from high demand for downstream high-speed optical modules.

Supply to leading downstream customers and comprehensively expand production capacity

Relying on its core technical advantages, the company has supplied leading downstream customers in various fields. The company uses benchmark customer R&D innovation and marketing to drive brand promotion models, fully connect with global benchmark customers in various segments, meet the non-standard individual needs of customers, sign joint R&D agreements with customers, and continuously enhance customer loyalty. In the context of the downstream boom window, the company comprehensively expanded production capacity. Among them, production capacity for high-performance metal chromium powder was added by 2,000 tons, production of liquid rocket engine thrust interior walls is planned to be expanded to 1100 sets, CT and DR ball tube components are expected to achieve production capacity of 30,000 sets/year and 15,000 sets/year respectively, and the optical module support sector is expected to build a new production capacity of 20 million units/year. The gradual release of new production capacity provides a driving force for the company to continue to grow.

Profit forecasts and investment ratings

Based on the 2023 performance, we adjusted the company's profit forecast. We expect the company's revenue for 2024-2026 to be 1,476, 17.90 billion yuan, and 2.172 billion yuan, respectively, and net profit to mother of 1.28, 1.71, and 215 million yuan, respectively. The corresponding PE is 44, 33, and 26 times, respectively. The company's “buy” rating was maintained, considering that many downstream sectors welcomed a boom window.

Risk warning

The risk of technological upgrading and iteration; the risk of technology failure to form a product or achieve industrialization; the risk of increasing production capacity; the risk of fluctuating raw material prices and hedging management; the risk of new project construction; and increased risk of industry competition.