A leader in the field of aeronautical forging, with steady growth in performance. The company is a leading supplier of forgings for high-end equipment in the aviation forging field in China. It has deep cooperation with COMAC and China Commercial Development. It is also a forging supplier for well-known aviation manufacturers such as Boeing, Airbus, Safran, Rollo, GE, ITP, IHI, Mettis, etc.
In 2023, the company achieved operating income of 10.58 billion yuan, an increase of 0.1% over the previous year; net profit to mother was 1.33 billion yuan, an increase of 11% over the previous year. Forging and casting products are the company's largest business segment, accounting for more than 75% of revenue since 2021.
Global demand for civil aviation is growing steadily, and the domestic aerospace industry is developing at an accelerated pace. Global demand for civil air travel has continued to recover since 2023, old aircraft in service have gradually withdrawn from the market, and civil aircraft deliveries are expected to maintain a steady upward trend. China's “14th Five-Year Plan” will clearly focus on promoting the demonstration operation of domestic C919 large airliners and the serial development of ARJ21 regional airliners, and the domestic civil aviation manufacturing industry will usher in opportunities for booming development. In 2024, China Aerospace is expected to carry out about 100 launch missions throughout the year, and the number of launches increased by 49% over the same period last year. Domestic aerospace parts companies have gradually developed into high-end market segments through independent research and development and introduction of advanced equipment. While continuously seeking overseas orders, they have achieved improved performance by following the batch delivery of large domestic aircraft.
Acquire shares in Hongshan Forging to develop a high value-added forging market. The company acquired 80% of Hongshan Forging's shares and obtained 500MN large die forging hydraulic equipment owned by Hongshan Forging, which can invest in the production of high-value-added forging orders in a short period of time. Hongshan Forging has the only 500MN forging press imported in China and built using three-beam and four-column technology. It has the characteristics of high accuracy, high innovation rate, long life, and large workbench space. It is suitable for processing large forgings, and can fill the company's lack of large-scale forging production capacity. At the same time, Hongshan Forging's main supporting equipment built around the 500MN forging press is imported advanced equipment, and the production line system is complete. This production line is also the only fully structured, advanced imported production line in China.
The construction of fund-raising projects continues to advance, and forging and casting production capacity is steadily expanding. The company invested in the advanced forging industry base construction project in the Xi'an New Area at the end of 2023. Furthermore, the aviation precision forging industry transformation and upgrading project and the special material isothermal forging production line construction project are expected to be put into operation one after another by the end of 2024, providing a production capacity guarantee for the further expansion of the company's market size.
Investment advice: The company is expected to achieve operating income of 123/145/171 billion yuan in 2024-2026, an increase of 17%/17%/18%; achieve net profit to mother of 15.8/19.0/2.31 billion yuan, an increase of 19%/20%/21% year on year. The current stock price is 19/16/13 times PE, respectively. Taking into account FCFF's valuation and relative valuation, we believe that the reasonable valuation range for the company's stock price is 21.6-22.5 yuan, corresponding to the 2024 dynamic PE range of 20.2-21.1 times, which is a 6%-10% premium over the company's current stock price. Covered for the first time, a “gain” rating was given.
Risk warning: the risk that demand in the aviation market falls short of expectations; the risk of fluctuating raw material prices.