Key points of investment
The company released its semi-annual report for 2023, and net profit to the mother decreased by 85% year-on-year.
The company released its semi-annual report for 2023, with operating income of 19.01 billion yuan, a year-on-year decrease of 40%; realized net profit of 105 million yuan, a year-on-year decrease of 85%; realized net profit of 88 million yuan, a year-on-year decrease of 87%, mainly due to the impact of the internal and external environment, and a year-on-year decrease in product delivery. We look forward to an improvement in the company's performance in the second half of the year, which is expected to benefit from the amount of smart ammunition released
By business, during the reporting period, superhard materials and their products achieved revenue of 1,225 million yuan, a year-on-year decrease of 24%, accounting for 64% of total revenue; realized net profit of 268 million yuan, a year-on-year decrease of 61%.
Special equipment achieved revenue of 436 million yuan, a year-on-year decrease of 67%, accounting for 23% of total revenue; auto parts achieved revenue of 253 million yuan, accounting for 13% of total revenue. Among them, the special equipment subsidiary Jiangji Special achieved operating income of 148 million yuan and net profit loss of 40.54 million yuan; the subsidiary Beifang Hongyang achieved operating income of 13.95 million yuan and net profit loss of 45.18 million yuan. In terms of special equipment, the company has vigorously promoted scientific and technological innovation to achieve new results, actively promoted the implementation of major strategic plans, and continued to take solid steps towards expansion, improvement and strengthening. According to the official WeChat account of Northern Hongyang, the company has developed and produced key mass-produced models of equipment, and is expected to benefit from the release of smart ammunition in the future and create new growth points for the company's performance.
Superhard materials are the leader, benefiting from the amount of intelligent ammunition released. Special equipment is expected to turn a loss into a new performance growth point. The core logic is: the special equipment business is expected to become a new growth point; cultivating diamonds and diamonds is growing steadily.
(1) Special equipment: As the backbone equipment of the Army, long-range rockets are booming; rockets, as consumables, will benefit the growth of the Yuanhuo industry chain. Chinese Army Red Arrow products include products such as large-caliber shells, rockets, missiles, and submunitions. It is the only ammunition marketing platform under the Ordnance Group. It is also the target for ammunition assembly and smart ammunition, which are scarce throughout the market. The narrowing of losses in Beifang Hongyang, a subsidiary of the company, indicates that the company's internal production and operation are continuously improving; at the same time, the company has developed and produced key mass-produced models of equipment, which is expected to benefit from the amount of smart ammunition released.
(2) As one of the world's leaders in cultivating diamonds, the company's press expansion, equipment upgrades and process improvements all promote release; the company is also a leading industrial diamond leader, benefiting from a sharp increase in demand for photovoltaic diamond wire.
(3) Long-range rockets are the Army's core weapon, and both domestic demand and foreign trade promote growth: the Russian-Ukrainian war highlights that the war has become a weapon of war, and that smart ammunition will be in high demand in the future. The Russia-Ukraine war may lead to a reshaping of the world's military trade pattern. China is far too fearful of “good quality and low prices,” and foreign trade is expected to develop beyond expectations.
Profit forecasting and valuation
The company is expected to benefit from the amount of smart ammunition released in the future, but considering that the decline in the boom in the superhard materials sector may have a large impact on the company's profit level, we lowered net profit from 2023-2025 to 5.0/7.1/1.04 billion, a year-on-year increase of 40%/47% in 2024 and 2025, and PE in 2023-2025 was 44/32/22 times, downgraded to a “increase in holdings” rating.
Risk warning: Cultivate changes in diamond competition patterns and profits, military products falling short of expectations, and major safety incidents.