Incidents:
The company released its 2023 annual report on March 29, 2024: annual revenue of 6.927 billion yuan, up 4.41% year on year; realized net profit of 544 million yuan, down 2.29% year on year; net profit after deducting 475 million yuan, down 7.74% year on year.
Comment:
Results in 2023 are under pressure, mainly affected by downstream demand. The company's revenue grew steadily in 2023, and net profit declined, mainly affected by the decline in titanium alloy sales. In 2023, the company's gross margin/net margin was 21.18%/9.74%, respectively, -0.46/ -0.39 percentage points; sales/management/finance rates were 0.91%/3.51%/0.52%, +0.14/-0.03/-0.46 percentage points, respectively. On a quarterly basis, in the fourth quarter of 2023, the company achieved operating income of 1.316 billion yuan, a year-on-year decrease of 14.31%, and realized net profit to mother of -0.05 billion yuan, a year-on-year decrease of 111.99%. In terms of titanium alloy production and sales, the company achieved an output of 30,000 tons in 2023, a year-on-year decrease of 7.76%, and sales volume of 29,400 tons, a year-on-year decrease of 7.05%, mainly affected by changes in the pace of military orders and weak investment cycles in some downstream application fields such as petrochemicals.
The company has strong R&D strength and has a number of core technologies with independent intellectual property rights. The company spent 289 million yuan on R&D in 2023, an increase of 18.13% over the previous year. The 4500-meter manned submersible “Deep Sea Warrior” titanium alloy manned ball shell developed by the company reached the international advanced level. It successfully developed the titanium alloy manned cockpit of the 10,000-meter manned submersible, successfully implemented and completed a number of major national science and technology projects, 863 projects, national key research and development plans, the National Development and Reform Commission's marine engineering R&D and industrialization projects, and aviation, aerospace, and deep-sea space station pre-research projects progressed in an orderly manner.
The favorable policy is conducive to the development of the company's titanium alloy business. The Shaanxi Provincial Development and Reform Commission has formulated an action plan for the 100 billion titanium industry innovation cluster, aiming to reach 110,000 tons of titanium processing in the province by 2025, with an annual output value of more than 100 billion yuan, and an annual output value of more than 200 billion yuan by 2030. In the future, the company will focus on increasing the application ratio of the company's titanium materials in aviation, aerospace, ships, weapons, deep sea, etc., further optimizing product structure adjustments, and increasing the market share of high-end titanium.
Investment advice: We adjust the profit forecast based on the annual report. We expect the company's revenue for 2024-2026 to be RMB 8.525/91.6/10.334 billion yuan, respectively, and net profit to mother of RMB 8.25/9.42/1.064 billion, corresponding EPS of 1.73/1.97/2.23 yuan, corresponding to PE15.8/13.83/12.25X, maintaining a “buy” rating.
Risk warning: Product delivery falls short of expectations, profit forecasts and valuations fall short of expectations