The company released its 2024 mid-year report

In the first half of 2024, the company's revenue was 0.624 billion yuan, +11.48% year over year; net profit to mother was 0.056 billion yuan, +6.28% year over year; after deducting non-return to mother 0.051 billion yuan, +27.18% year over year.

Among them, Q2's revenue in 2024 was 0.337 billion yuan, +9.21%, +17.26%; net profit to mother was 0.031 billion yuan, +1.24% year over year, +27.73% month on month; 0.03 billion yuan without return to mother, +38.9% year on year, +40.15% month on month.

Increased gross margin highlights profitability, and R&D efforts continue to increase

1) Gross profit margin: In the first half of 2024, the company's gross profit margin was 23.80%, +3.5pct year-on-year.

2024Q2's gross profit margin was 24.33%, +1.16pct month-on-month, and +5.58pct year-on-year.

2) Non-recurring profit and loss: In the first half of 2024, a government subsidy of 6.34 million yuan was confirmed, -63.9% year-on-year, including 4.27 million yuan for 24Q1 and 2.07 million yuan for 24Q2.

3) Expenses: The company's financial expenses for the first half of 2024 were 8.48 million yuan, +317.4% year-on-year, and the financial expenses ratio was 1.36%, +1.00pct year-on-year, mainly due to the increase in the scale of debt financing and the decrease in exchange gains and losses.

4) R&D investment: R&D expenses in the first half of 2024 were 32.4357 million yuan, +30.61% year over year, accounting for 5.20% of revenue, up 0.76pct year on year. The company continued to increase R&D efforts.

The company actively promoted key R&D plans and projects at the national and provincial levels, and increased investment in key independent R&D projects such as liquid rocket engine thrust interior wall materials and products, optical module chip bases/cases, semiconductor equipment components, and high-strength wear-resistant copper alloys, thus increasing the overall amount of R&D investment.

5) Export revenue: In the first half of 2024, the company's export revenue was 0.173 billion yuan, +27.79% year-on-year.

In the field of high-conductivity high-strength copper alloy materials and products, the company focuses on laying out materials and products for the semiconductor industry and generator industry in the US, Europe, Japan and other market regions. In the field of medium and high voltage electrical contact materials and products, the company and customers such as Siemens and Schneider have achieved breakthroughs in the application and verification of new technologies and products. In the field of CT and DR tube materials and components, we are deepening business cooperation with industry benchmark companies such as Siemens and Varex.

Invest in new projects to create new production capacity for products such as rocket nozzles

The company plans to invest 1.33 billion yuan to build two projects. Among them, the “liquid rocket engine thrust chamber materials, parts and components industrialization project” plans to invest 0.51 billion yuan, and the “Sirui New Materials Technology Industrial Park Construction Project (1)” plans to invest 0.82 billion yuan.

Liquid rocket engine thrust chamber materials, parts, and components industrialization project: The total investment of this project is 0.51 billion yuan. The first phase is to invest 0.23 billion yuan, and the second phase is to invest 0.28 billion yuan. The total construction period of the project is about 5 years, of which the construction period for the first phase of the project is 3 years, and the construction period for the second phase of the project is 2 years. It is estimated to produce about 300 tons of forgings per year, 400 sets of rocket engine injector panels, 1,100 sets of rocket engine thrust interior walls, and exterior walls.

“Sirui New Material Technology Industrial Park Construction Project (1)”: The total investment of this project is 0.82 billion yuan, including the “R&D and industrialization project for electric vacuum materials and components with an annual output of 0.03 million sets of medical imaging equipment”, with a proposed investment of 0.4 billion yuan; the “project with an annual output of 20 million optical module chip base/case materials and components”, which plans to invest 0.32 billion yuan; “tungsten-copper alloy materials and parts project”, with a proposed investment of 0.1 billion yuan RMB. In this project, the “R&D and industrialization project for electric vacuum materials and components with an annual output of 0.03 million sets of medical imaging equipment” has a construction period of 4 years; the “project with an annual output of 20 million optical module chip base/case materials and components” and a “tungsten-copper alloy material and parts project” has a construction period of 5 years.

Investment advice:

We expect the company to achieve operating income of 1.619, 2.071, and 2.693 billion yuan respectively in 2024-2026, and net profit of 0.133, 0.179, and 0.25 billion yuan, corresponding EPS of 0.18, 0.25, and 0.34 yuan/share, respectively. Currently, the corresponding PE price is 39.2, 29.2, and 20.9 times. The company maintains a “buy-A” rating, with a target price of 10.9 yuan/share for 12 months, which is about 44 times PE in 25 years.

Risk warning: New product promotion falls short of expectations, demand falls short of expectations, and project progress falls short of expectations.