Incident: The company released its 2024 mid-year report, and 1H24 achieved revenue of 0.731 billion yuan, YoY +6.1%; net profit due to mother 0.191 billion yuan, YoY +7.1%; net profit after deducting non-return to mother 0.192 billion yuan, YoY +11.4%. The company's performance is basically in line with market expectations. Our comprehensive review is as follows:
1H24 Revenue & profit are rising steadily; profitability remains at a high level. 1) Looking at a single quarter: 2Q24 achieved revenue of 0.38 billion yuan, YoY +6.4%; net profit to mother of 0.1 billion yuan, YoY +5.7%; after deducting non-net profit of 0.102 billion yuan, YoY +8.7%. 2Q24 gross margin increased by 0.7 ppt to 37.9% year on year; net margin decreased by 0.2 ppt to 26.3% year on year, and profit margins were basically stable. 2) Looking at the first half of the year: 1H24 gross margin increased by 1.1 ppt to 38.3% year on year; net margin increased 0.3 ppt to 26.2% year on year, and the company's profitability continued to remain at a good level. 3) From a domestic and export perspective, 1H24:1) Domestic revenue was 0.61 billion yuan, which was basically the same as the same period last year, and gross margin increased by 0.9 ppt to 38.0% year on year; 2) Overseas revenue was 0.07 billion yuan, up 9.5% year on year, and gross margin fell 0.5ppt to 30.7% year on year. Overall, it is relatively stable.
Revenue from deformed superalloys increased 31% year on year; gross margin of all types of alloys increased. By product, 1H24:1) Foundry superalloy product revenue was 0.279 billion yuan, YoY -19.5%, revenue share decreased 12.1ppt to 38.2% year over year; gross margin increased 5.2 ppt to 50.8% year over year; 2) Deformed superalloy revenue was 0.277 billion yuan, YoY +30.8%, revenue share increased 7.2ppt to 37.9% year over year; gross margin increased 1.4ppt to 30.5% year over year. 3) Special stainless steel revenue was 0.038 billion yuan, YoY -5.4%. The revenue share decreased by 0.6ppt to 5.3% year on year; gross margin increased 1.1 ppt to 41.9% year on year. 4) Revenue from other alloy products was 0.088 billion yuan, YoY +21.1%, and revenue share increased 1.5ppt to 12.0% year over year; gross margin increased 0.8ppt to 13.1% year over year. Overall, gross margins of all types of alloys have increased.
Continued increase in R&D investment; cash flow from operating activities improved markedly. In terms of expenses, the cost rate increased by 1.4ppt to 8.2% year-on-year during the 1H24 period, including: 1) the company increased R&D investment according to the task requirements of the R&D project and the progress of the project R&D plan. R&D expenses increased by 79.4% to 0.036 billion yuan, and the R&D cost rate increased 2.0ppt to 4.9% year over year; 2) the management fee ratio decreased by 0.5ppt to 2.8% year over year; 3) the financial expense ratio decreased by 0.15ppt to 0.1% year over year, mainly due to increased exchange earnings. 4) The sales expense ratio increased by 0.1ppt to 0.7% year-on-year. By the end of 1H24, the company 1) inventory increased 7.4% to 0.5 billion yuan from the beginning of '24; 2) fixed assets increased 8.2% to 0.71 billion yuan from the beginning of '24; 3) contract liabilities increased by 64.8% to 14.07 million yuan compared to the beginning of '24, mainly due to an increase in prepaid customer payments. The net cash flow from 1H24's operating activities reached 0.23 billion yuan, a significant improvement over -0.07 billion yuan in the same period last year. The main reason was that sales repayments for the current period were timely, while notes receivable and bank acceptance notes receivable at the end of the previous year matured one after another in the current period.
Investment advice: The company is the core supplier of superalloys and their products in China. It actively extends the industrial chain to the middle and downstream machining fields and opens up room for growth. We expect net profit from 2024-2026 to reach 0.42 billion, 0.53 billion, and 680 million yuan, corresponding PE of 22x/17x/13x. We maintain the “Recommended” rating, considering the expansion of the company's business and the continued boom of the “two aircraft”.
Risk warning: downstream demand falls short of expectations; business development falls short of expectations; fluctuations in raw material prices, etc.