The company released the “2023 Annual Report”. During the reporting period, it achieved revenue of 2,803 billion yuan, a year-on-year increase of 20.01%; achieved net profit of 576 million yuan, an increase of 30.23% over the previous year; and realized net profit of 566 million yuan without return to mother, an increase of 27.43% over the previous year.
The annual operating target was exceeded, and the performance achieved rapid growth. In 2023, the company exceeded its annual operating target and achieved operating income ($2,803 million, +20.01% year over year), mainly due to an increase in product orders; realized net profit attributable to mother (576 million, +30.23% year over year); realized net profit deducted from mother (566 million, +27.43% year over year). By business situation, 1) basic materials business: realized revenue ($1,323 million, +19.79% year over year), mainly due to increased product orders, gross margin decreased by 1.25 pcts year on year to 31.53%; 2) Aeronautical finished parts business: realized revenue (1.28 billion, +23.87% year over year), product orders increased, gross margin decreased 5.80 pcts to 32.47% year on year, mainly due to changes in military tax exemption policies; 3) Non-aviation finished parts business: realized revenue (124 million, -15.48% year over year), mainly due to the increase in product orders Due to a decrease in product orders, gross margin increased by 2.46 pct to 15.24% year on year, mainly due to product restructuring; 4) Processing services: realized revenue (80 million, +27.76% year over year), product orders increased, and gross margin increased 3.93 pct to 13.41% year over year. By region, 1) Domestic business: achieved revenue ($2,576 billion, +18.71% YoY), gross margin decreased by 2.48pct to 31.60%; 2) Overseas business: realized revenue ($190 million, +31.83% YoY), gross margin fell 2.30pct to 18.46%, and overseas export orders increased significantly.
The military tax exemption policy affects gross profit margins, and the three cost rates are well controlled. In terms of profitability, the company's gross sales margin during the period was 31.55%, a year-on-year decrease of 2.24pct, mainly due to changes in the military tax exemption policy.
The company incurred sales expenses during the period ($15 million, +11.67% year over year), mainly due to expansion of business scale and increase in sales activities; management expenses (82 million, +20.15% year over year), mainly due to business scale expansion, addition of necessary management personnel, and year-on-year increase in depreciation and intangible asset amortization; financial expenses (-50 million, -15 million in the same period in '22), mainly due to an increase in interest income on capital raised; the company's expenses rate for the period was 1.65%, down 1.20pct from the same period in '22. R&D expenses ($204 million, +8.97% YoY) are mainly due to continued increase in R&D investment. The net profit margin on sales was 20.56%, up 1.61 pct from '22.
Construction of the fund-raising project began, and net operating cash flow increased dramatically. 1) In terms of balance sheet: The balance of projects under construction at the end of the period reached 108 million yuan, +347.43 percent compared to the end of the previous year, mainly due to the launch of fund-raising projects and the commencement of construction projects; the balance of fixed assets at the end of the period reached 217 million, +31.62% compared to the end of the previous year, mainly due to large-scale equipment inspections. The company's IPO fund-raising projects cover the company's four major business segments. The core is to ease the tight production capacity situation in various major businesses and prepare for future increases in downstream demand. In the future, it is expected that the construction and commissioning of the company's fund-raising projects will drive a continuous increase in the company's revenue and profitability. 2) In terms of cash flow: Net cash flow from operating activities reached 265 million yuan, +54.62% year-on-year, mainly due to accelerated repayments and planned payments during the current period, leading to a significant increase in net operating cash flow.
The amount of related transactions is expected to increase, highlighting strong downstream demand. According to the “Notice Concerning Expected Daily Related Transactions in 2024” issued by the company, it is estimated that the total procurement of goods, labor services and other services from related parties in 2024 will be 313 million yuan, an increase of 22.16% and 47.69%, respectively, compared with the estimated amount and actual amount incurred in 23. Among them, it is estimated that the Zhenjiang subsidiary's related procurement is 180 million yuan, an increase of 60.20% over the previous year. The Zhenjiang subsidiary currently undertakes the front and back stages of titanium alloy casting processes. After future injections, the production capacity and processing capacity of titanium alloy castings will be further increased, and the growth trend of the prominent titanium alloy casting business will continue. It is estimated that the total sales of products, provision of labor and other services to related parties will amount to 1,054 billion dollars, an increase of 20.12% and 23.44%, respectively, compared with the estimated amount and actual amount generated in '23. The company expects a significant increase in the amount of related transactions, which highlights strong demand from downstream aviation development.
Profit forecast: The company's net profit for 2024/2025/2026 is expected to be 6.99/8.60/1,052 million yuan, corresponding to a valuation of 35, 28, and 23 times, maintaining a “highly recommended” rating.
Risk warning: The pace of production expansion falls short of expectations, and orders fall short of expectations.