Investment highlights

For the first time, Chujiang New Materials (002171) was covered to give it a rating that outperformed the industry. The target price was 12.41 yuan. Based on the SOTP valuation method, the corresponding valuation was 25.4 times P/E in 2025. The reasons are as follows:

A leader in the copper-based materials segment, benefiting from high-end production capacity upgrades. The company specializes in the development and manufacture of advanced copper-based materials, and is ranked first among the “top ten enterprises” of copper strip in China. In 2023, the production and sales volume of high-precision copper alloy sheets and strips ranked first in the country. In 2023, the company's revenue for copper-based materials reached 44.2 billion yuan. Revenue has maintained a steady growth trend in recent years, with a revenue CAGR of 29.3% from 2019 to 2023. The company is committed to the high-end upgrading of copper processing capacity. According to the company's announcement, the company's convertible bond raising capacity upgrade projects may be put into operation one after another in 2024/2025. We believe that the release of additional high-end production capacity is expected to support the growth of copper-based materials in 2025 and beyond.

The subsidiary's card position is expected to enjoy the dividends of a recovery in downstream demand. High temperature resistant composites are the only materials that can maintain high mechanical properties above 2,500℃, and are widely used in hypersonic aircraft, rocket engines, etc. Tianniao Hi-Tech is a core supplier of high temperature resistant composite prefabs in China. It undertakes supporting tasks for a number of major national projects, and also exclusively supplies C919 brake disc prefabs. We believe that as demand in the aerospace science and technology industry gradually recovers, segments such as accurate guidance or have greater repair flexibility, the key aspects of Tiantao Hi-Tech Card Fiber Prefabrication are expected to fully enjoy the recovery dividends in the downstream sector.

Leading supplier of high-end thermal equipment, supporting major engineering needs in many countries. Thermal equipment is the carrier of heat treatment processing technology, with a high degree of specialization and technical barriers. According to data from the Huajing Industry Research Institute, the global thermal equipment market size in 2023 is about 8.2 billion US dollars, and the domestic thermal equipment market size is about 18.2 billion yuan. The subsidiary Dingli Technology is a core supplier of high-end thermal equipment in China, and its products meet major engineering needs in many countries. From 2019 to 2023, Dingli Technology's revenue increased from 0.197 billion yuan in 2019 to 0.645 billion yuan in 2023, with a four-year CAGR of 34.5%. We believe that with the development of domestic fields such as composite materials and powder metallurgy, the demand for special thermal equipment is expected to continue to expand and drive the company's growth.

What is our biggest difference from the market? The market is not yet fully aware of the flexibility and growth potential of the subsidiary's business. We believe that the key aspects of Tiantao Hi-Tech Card's high temperature resistant composite prefabrication are expected to fully enjoy the dividends of downstream demand recovery and have greater performance flexibility and room for growth.

Potential catalysts: recovery in demand in special fields; increased production capacity for copper-based materials.

Profit forecasting and valuation

We expect the company's 2024-2026 EPS to be 0.14/0.49/0.59 yuan, respectively, and a CAGR of 103%.

The company's current share price corresponds to 18.2x P/E in 2025. We believe that the production capacity of the company's main business has been steadily upgraded, and the subsidiary is expected to fully share the dividends of the recovery in demand in special industries. For the first time, the “outperforming industry” rating was given. Based on the SOTP valuation, the company was given a target price of 12.41 yuan, corresponding to 25.4 times P/E in 2025, with a potential increase of 40%.

risks

The recovery in downstream demand falls short of expectations; the risk of capacity upgrading falling short of expectations; and the risk of fluctuations in raw material prices.