1H24 results slightly exceeded market expectations
The company announced 1H24 results: 1H24 achieved operating income of 2.02 billion yuan, YoY -4.33%; realized net profit of 0.348 billion yuan, YoY -17.24%; realized net profit of 0.312 billion yuan after deduction, YoY -16.37%. Looking at a single quarter, 2Q24 achieved operating income of 1.227 billion yuan, YoY +3.13%, QoQ +54.60%; net profit to mother of 0.238 billion yuan, YoY +11.83%, and QoQ +115.39%. 1H24's performance slightly exceeded market expectations, mainly due to improved month-on-month demand for high-end titanium alloys in 2Q and increased delivery of major projects for superconducting products.
Development trends
The year-on-year decline in high-end titanium alloy revenue narrowed, and the year-on-year increase in R&D expenses led to a decline in net interest rates. 1) 1H24's titanium alloy/superconductive/superalloy achieved revenue of 1.284/0.482/0.156 billion yuan, YoY -4.07%/+19.95%/-44.67%, respectively. In the high-end titanium alloy sector, the decline in overcoming the weakening market demand narrowed significantly, and the development and delivery of major projects progressed smoothly; external orders for superconducting products continued to increase, continuing the growth trend along with increasing production capacity; the second phase of the superalloy production line and return material processing line were put into trial production. 2) The company's gross margin/net margin decreased by 0.26/3.00ppt to 32.03%/17.45%, respectively. The gross margin remained stable, and the net interest rate declined markedly due to the year-on-year increase in R&D expenses.
R&D investment guarantees core competitiveness, and cash flow from operating activities has improved markedly. 1) The 1H24 company's expense ratio increased by 3.17ppt to 13.86% year-on-year during the period, and the impact of expenses was highlighted due to the decline in revenue scale. Among them, the R&D cost rate increased by 2.71 ppt to 8.88% year on year. The company works closely with downstream customers to achieve forward-looking R&D in key projects. We believe that the company's insistence on R&D investment is expected to keep up with market demand and guarantee core competitiveness. 3) The net cash flow from 1H24's operating activities was 0.115 billion yuan, YoY +130.61%. The increase in sales payments and the decrease in operating procurement expenses led to a significant improvement in operating cash flow.
The leading position of aviation titanium alloy is stable, and the superconducting and superalloy business can be expected to grow in the long term. 1) The company is one of the core suppliers of titanium alloys for next-generation aviation equipment in China. At the same time, it has successfully promoted multiple models to obtain supply qualifications in the field of commercial aircraft and combustion engines, and has a stable leading edge in the industry. We believe that with the recovery of downstream demand and the expansion of product application scenarios, the company's titanium alloy business is expected to gradually recover. 2) According to the company's announcement, the company's superconducting products completed the delivery task of superconducting wires for domestic nuclear fusion CRAFT projects, and began batch supply for BEST fusion projects, expanding multiple application scenarios. 3) According to the company's announcement, in the first half of 2024, the main brands in the company's superalloy business passed product certifications for multiple “two aircraft”, aerospace models, and multiple users. We believe that as a leading aviation titanium alloy company, the company continues to explore the superconducting and superalloy markets, and can be expected to grow in the long term.
Profit forecasting and valuation
We maintain our 2024/2025 profit forecast of 0.901/1.172 billion, and the current stock price corresponds to 2024/2025 25.9/20.0x P/E. We maintain our outperforming industry rating and maintain a target price of 48.52 yuan, corresponding to 2024/2025 35.0/26.9x P/E, with a potential increase of 34.8%.
risks
1) Downstream demand falls short of expected risk; 2) Product delivery falls short of expected risk.