Domestic military goods business consolidated the foundation, and overseas foreign trade added a second growth curve

Military products, the core ring forging supplier for aviation development, are deeply tied to the main engine unit in Xi'an, Guiyang, benefiting from the batch production volume of the new three- and fourth-generation engines, and the demand boom is strong;

Civil products, 1) Aviation: Foreign trade business is developing rapidly, and orders are steadily tied to high-quality overseas customers. Revenue scale reached 77% in 21-23, and gross margin increased steadily; 2) Gas turbines: Benefiting from high demand for downstream marine gas turbines and industrial gas turbines, revenue increased 240% year on year in '23.

There is plenty of existing and ongoing production capacity. The company has three production bases to meet order demand (currently 4.9 billion in hand orders). The Guiyang headquarters and the new Deyang plant can achieve an output value of 3.7 billion after full production, and the new Guiyang plant is under construction, including:

1) The Guiyang headquarters has basically reached full production, with an annual output value of about 1.5 billion; 2) The first phase of the Deyang plant is expected to be fully produced in 24 years and can achieve an annual output value of 1-1.5 billion; the second phase of the project is expected to be put into operation in 27 years, and the full production can achieve an annual output value of about 0.7 billion; 3) The new Guiyang factory (Shawen) is expected to be put into operation for 26 years within 24 years, providing the company with additional production capacity after delivery;

The two-phase equity incentive is tied to the core backbone, and the chairman's full subscription increases confidence. The company implemented two equity incentives in April and September '22, respectively. The coverage rate for core personnel was high. At the same time, the second phase of the plan was to reserve some restricted shares to attract talents; the goal for the first phase was to deduct 24.11% of non-net profit for 22-24 years, and the target for the second phase was raised to 29.50%. Furthermore, in 2023, the chairman of the company fully subscribed to the 3.4682 million additional shares to be issued.

Investment advice: The company's revenue for 2024/25/26 is estimated to be 2.106/2.624/3.127 billion yuan, and net profit to mother is 0.227/0.326/0.391 billion yuan, respectively. Corresponding to the current stock price P/E is 18.7x/13.0x/10.8x times, respectively. Considering the company's high level of growth, with reference to comparable companies, the company was given 23xPE in 2024, with a target market value of 5.219 billion yuan, corresponding to a target price of 35.28 yuan.

Risk warning: Downstream demand falls short of expectations, capital raising and production expansion progress falls short of expectations, risk of price fluctuations of major raw materials, and estimates fall short of expectations.