Main points of investment:

High temperature alloy emerging enterprises, in-depth layout to seize the opportunity of "two machines". The company started with alloy pipes, and gradually set up casting superalloy and deformed superalloy production lines to create a domestic first-class supplier of superalloys and corrosion-resistant alloys, with a long-term vision to become the core basic materials supplier of the global power industry. The ownership structure of the company is centralized and stable, and the three major employee shareholding platforms are deeply bound to the interests of the company and employees. The company's performance is expected to continue to increase with the volume of superalloy, and the cost side is well controlled.

In 2022, the company achieved revenue of 952 million yuan, an increase of 31% over the same period last year, and a net profit of 94 million yuan, an increase of 35% over the same period last year. During the period of 2022, the expense rate decreased from 2.9pcts to 11.8%. The effect of reducing cost and increasing efficiency is significant.

The downstream application field is booming, and the superalloy is developing well. Superalloys have good properties and are widely used. At present, although superalloys in China have entered the "original" stage, due to the high technical complexity of the superalloy industry, there is still a large gap in the overall technical level between China and foreign leading enterprises, especially in high-end products. There is a large gap between supply and demand. Supply side: high barriers and policy support, high industry growth; domestic superalloy producers are mainly special steel enterprises, scientific research institutes and their subordinate enterprises and private enterprises. Demand side: the demand for "two machines" is growing steadily, and the domestic replacement of superalloys is accelerated. We estimate that in the next ten years, the market for engine superalloy traction will reach the order of 10 billion, of which the military sector accounts for 60% and the civilian sector accounts for 40%.

The gas turbine market is monopolized by foreign countries, and domestic substitution is expected to lead to a substantial increase in the demand for superalloy materials.

Advance planning of strategic transformation, multiple advantages to create a new star of the industry. The company has obvious advantages in talent, the core team has rich experience, reasonable structure and complementary advantages; the company's R & D investment has increased year by year, demonstrating the determination to tackle key technical problems, improving the ability of superimposed cost control, and achieving remarkable results in reducing fees and increasing efficiency; the company has a large number of patents, reflecting the company's strong R & D strength and solid technical foundation, and enriching the patent reserve to help fly the company's performance. In addition, the company has advanced manufacturing technology, the process level is in the domestic first-class level, with the company's advanced production technology and strong technical advantages, the company's superalloy product quality has an advantage in the industry. The company's products high gross margin superimposed stable supply and marketing structure, with stable profitability. The company's main business transformation to optimize the product structure, fund-raising and production expansion to broaden the growth space.

Cover and give "overweight" rating for the first time. As a new domestic superalloy enterprise, the core of the company benefits from the high prosperity in the lower reaches of the industrial chain. in addition, with the fund-raising projects put into production one after another, the company's production capacity and profitability are expected to continue to improve. We estimate that the return net profit of the company in 2023-2025 is 1.36 million yuan respectively, and the PE of the corresponding stock price in 2023-2025 is two times that of 46-34-26. Select Gangyan Gaona (the main products are cast superalloy products, deformed superalloy products and new superalloy materials and products, etc.), aviation sub-technology (the main products are aero-engine parts), aviation power (the main products are aero-engines and gas turbines, components, etc.) as comparable companies, the average PE of comparable companies from 2023 to 2025 is 61-45-35, and the company's PE valuation is lower than the industry average in 2023. Considering the strong demand for superalloys, the company is expected to maintain rapid growth in the future, so it is covered for the first time and given an "overweight" rating.

Risk tips: fluctuation of raw material prices; intensified competition in the field of superalloys; progress and uncertainty of product introduction verification