Overall review: Card position at the core of advanced aeronautical materials, diversified business layout and profitability continue to improve. The company is an advanced aeronautical materials industrialization platform under the Aviation Materials Institute, and has been deeply involved in the field of aeronautical materials for more than 60 years to form four core businesses. The company's industry-research integration with the Aviation Materials Institute is expected to achieve good synergy effects and occupy a key position in aeronautical materials production and research. The metal materials business focuses on “one plate, two pieces, one case” for aero engines, and there is still potential for business expansion downstream of the industrial chain. The company's main downstream customers are companies affiliated with the aviation industry and aviation development group, and demand is highly deterministic. In 2019-2023, the company's overall revenue grew steadily, and profitability continued to increase. Production capacity was clearly limited against the backdrop of strong downstream demand, and fund-raising projects are expected to quickly resolve production capacity bottlenecks. The share of the company's inventory and products issued has remained high, and capital expenditure has grown rapidly in the past two years, establishing certainty for long-term growth.
Titanium alloy: Integrated precision casting is an industry trend. The equity transfer of Zhenjiang Company is expected to enhance the business layout. High-strength titanium alloys exceed many alloy steels and are less dense. They are widely used in cold end components of aero engines, making an important contribution to improving engine performance across generations. The amount of titanium used in foreign aero engines is 25% to 40%, showing a trend of increasing from generation to generation. Titanium alloy precision integrated casting is beneficial to product weight reduction, and under the high thrust-to-weight ratio requirements of advanced engines, titanium alloy precision integrated casting has become a trend. The overall casting process for complex titanium alloys is complex. The shape and dimensional stability and accuracy transfer process of the wax mold and shell have a significant impact on the final acquisition of high-precision castings, and the difficulty of R&D has led to high industry concentration. Titanium alloy precision castings have a wide range of application scenarios and great potential for horizontal product expansion. Zhenjiang Titanium Alloy Company has a clear injection plan, and advanced automated production lines are expected to improve traction efficiency.
High temperature alloys: Single crystal and powder alloys have obvious performance advantages, and sales of advanced card position alloys are expected to fully benefit. Advanced engines need to increase unit thrust through measures such as increasing the temperature in front of the turbine, so that fighter jets can cruise at supersonic speed without acceleration. Single crystal superalloys have excellent high-temperature creep properties after completely eliminating the influence of the grain boundary by removing the reinforcing elements at the crystal boundary and are the preferred material for advanced high pressure turbine blades; powder superalloys form a dense crystal structure by refining grain size, have a long fatigue life, and are the preferred materials for advanced high pressure turbine discs. The impurity content of the company's smelted master alloys has reached the world's advanced level and has a complete R&D and production system. The company collaborates with the Aviation Materials Institute to sell undefined grade master alloys directly from raw material processing methods to the outside world after molding. The master alloy business has full potential for long-term development, and there is plenty of room for improvement in gross margin.
Overlooked highlights: Key non-metallic materials for card slots, forward-looking layout opens up space for long-term growth in the aircraft business. Transparent cockpit components are a key component of fighter jets. Against the backdrop of continuous improvement in fighter performance requirements, transparent parts technology is constantly being iteratively upgraded. The technical solutions for advanced aeronautical transparent parts have increased in complexity, and manufacturers need high R&D capabilities. The company's transparent parts division is a R&D and production base with a comprehensive professional research direction and a high level of research in China. It inherits the core technology of the Aviation Materials Institute to form a deep technical reserve, and has a first-mover advantage in product upgrading and iterative requirements. In the context of the commercial operation of the large commercial aircraft C919, the localization process of parts is expected to accelerate. The market space for Chinese narrow-body airliners is about 749 billion US dollars in the next 20 years, with an average annual market value exceeding 37 billion US dollars. The company's sealants and transparent parts products are expected to be used in large commercial aircraft, and there is broad room for long-term growth.
Company profit model forecasting, investment ratings, and valuations
The first coverage gives a buy rating. The company's net profit for 24/25/26 is estimated to be 7.10/9.15/1.05 billion yuan, a year-on-year growth rate of 23.3%/28.8%/31.7%, corresponding PE 36/28/21 times. As the production line of the fund-raising project is upgraded, the certainty of performance is high.
Risk warning
1. The risk that the asset injection process of Zhenjiang Titanium Alloy Company falls short of expectations; 2. The risk that the superalloy grade development and finalization process falls short of expectations; 3. The risk that assumptions involved in profit forecasting are untrue or fall short of expectations.