Incident: In 2023, the company achieved operating income of 1.385 billion yuan, +34.12% year on year; net profit to mother 0.33 billion yuan, +29.64% year over year; net profit after deducting non-return to mother 0.317 billion yuan, +26.91% year over year. In Q1 2024, the company achieved operating income of 0.35 billion yuan, +5.70% year on year; net profit to mother 0.091 billion yuan, +8.75% year over year; net profit after deducting non-return to mother 0.09 billion yuan, +14.59% year on year. We believe that the company's initial public offering of shares has all been completed, the production scale of leading products has been further expanded, and production and sales have achieved steady growth. With the rapid development of application fields such as downstream aero engines and gas turbines, the company's business performance and profitability are expected to continue to improve steadily.
Profitability is basically stable, and the cost side is basically stable
In 2023, the company's gross profit margin was 34.33%, -0.67pct year on year; the net profit margin was 23.86%, -0.82pct year on year, and profitability remained stable. Among them, the gross margin of cast superalloys was 45.57%, -0.78pct; the gross margin of the deformed superalloy was 24.53%, -0.65pct; the gross margin of special stainless steel was 41.05%, -0.13pct; and the gross margin of other alloy products was 11.40%, +2.50pct year on year.
The company's cost rate for the period was 8.04%, -2.26pct year on year, and the sales/management/ financial/ R&D expenses ratio was 0.73%/3.27%/0.00%/4.04%, respectively, and -0.08/-1.01/0.00/1.17pct, respectively, all of which remained stable.
Foundry and deformed superalloys drive growth. In 2023, the company achieved revenue of 0.624 billion yuan for casting superalloys, +31.39%; deformed superalloys achieved operating income of 0.441 billion yuan, +38.10% year-on-year; and other alloy products achieved revenue of 0.183 billion yuan, or +44.96% year-on-year, all of which maintained a relatively rapid growth rate. Meanwhile, as of the end of 2023, the amount of revenue corresponding to the company's performance obligations that have signed a contract but has not yet been fulfilled or not fulfilled is $0.603 billion, of which 0.551 billion yuan is expected to confirm revenue in 2024, 0.046 billion yuan is expected to recognize revenue in 2025, and 5.1075 million yuan is expected to recognize revenue in 2026. We believe that downstream customers in the advanced metal materials industry are mainly distributed in military and high-end civilian product manufacturing fields such as aircraft, aero engines, gas turbines, nuclear power equipment, etc. The industries they belong to are all key national policy support industries, and the advanced metal materials industry will continue to receive strong financial and policy support for a long time to come. At the same time, with the implementation of the two-engine project, China will gradually establish basic research, technology and product development and industrial systems for independent innovation of aero engines and gas turbines. The company's product market has a lot of room for growth in demand and import substitution, which is expected. Promote the steady growth of the company's main business revenue.
The completion of the fund-raising project expanded production capacity, and the aviation small and medium parts project progressed steadily until the end of 2023. As of the end of 2023, the company's initial public offering of shares to raise capital investment projects “ultra-pure high-performance superalloy material construction project with an annual output of 1,000 tons”, “complex thin-walled superalloy structural parts construction project with an annual output of 3,300 pieces”, and “enterprise R&D center construction project” have all been completed, and all fundraising projects have been completed. The construction of the above fund-raising project added the company's production capacity to produce 1,000 tons of ultra-pure high-performance superalloys and 3,300 complex thin-walled superalloy structural parts per year, enhancing the company's technological research and development advantages, and further expanding the production scale of the company's leading products. In 2023, the company carried out the construction of an automated production line project with an annual output of 10 million small and medium-sized aviation parts through its wholly-owned subsidiary Tunan Intelligent Manufacturing, with a total investment of 0.855 billion yuan. After completion of the project, it will form a production capacity of 10 million small and medium-sized aviation components per year.
We believe that on the basis of keeping up with equipment development needs, continuing to increase market development efforts in the military and civil sectors, and striving to improve the level of quality management and lean management, the company's fund-raising project construction has shown initial results, and production and sales of the company's leading products are growing steadily; the construction of small and medium-sized aviation parts projects will help the company improve the layout of the aviation industry chain, expand the product range, further consolidate the company's core competitiveness and expand the industry market. In summary, the industry's high prosperity was confirmed. Considering continued fluctuations in upstream raw material prices and the impact of the pace of downstream delivery, we adjusted the company's net profit from 0.471/0.641 billion yuan to 0.404/0.513 billion yuan in 2024 to 2025. The net profit to mother in 2026 was 0.629 billion yuan, and the corresponding PE was 25.56/20.15/16.43X, respectively, maintaining a “buy” rating.
Risk warning: the risk of high customer concentration, the risk of military market development, the risk of technology not being advanced, the risk of rising raw material prices, etc.