The company is one of the core suppliers of private superalloys in China. It has formed a comprehensive layout of the two aircraft, civil products and international markets, and continues to accelerate market development and brand introduction. It is expected that the core will benefit from increased downstream demand and increased penetration rate. A “Highly Recommended” rating was given for the first time.

The company's revenue increased rapidly, and superalloys contributed mainly to the growth rate. 1) Revenue side: In 2021-2023, the company's revenue maintained a rapid growth trend, and the superalloy business contributed mainly to the growth rate. CAGR reached more than 30% in 2021-2023, mainly due to the rapid expansion of the company's superalloy business; with 2024Q1, the company achieved revenue of 317 million, an increase of 30.54% over the previous year, and maintained a high growth rate. Among them, superalloy products achieved revenue of 206 million yuan, an increase of 43.75% over the previous year. 2) Profit side: Net profit due to mother declined in '23, and resumed a high growth rate in 24Q1 after excluding the impact of share payment fees. The company's net profit to mother has increased rapidly since 2019-2022, superalloy sales volume has increased, and gross margin has been maintained. The company's net profit declined to 55 million in 2023, mainly due to factors such as fluctuations in raw material prices, preparation for falling inventory prices, and increases in share payments, R&D expenses, and import and verification costs over the same period last year. With 2024Q1, the company achieved net profit of 0.28 million yuan, an increase of 7.15% over the previous year. Excluding the impact of share payment expenses, the company achieved net profit of 39 million yuan, an increase of 49.19% over the previous year, and resumed a high growth rate.

The superalloy industry is in short supply, and the market space continues to grow. Superalloys are key strategic materials for aerospace and other strategic industries. They not only have excellent high temperature strength, good oxidation resistance and corrosion resistance, but also have good comprehensive properties, such as creep performance, fatigue performance, fracture toughness, structural stability, and process properties. Shortage of supply: The shortage of superalloys is prominent, and the supply gap is widening year by year:

According to data from the Observation Research Institute, superalloy production in 2022 was 42,000 tons, while demand reached 70,000 tons. The gap widened to 28,000 tons, showing a continuous growth trend. Broad market space: According to QYResearch data, the global superalloy market sales reached 69.6 billion yuan in 2023, and is expected to reach 108 billion yuan in 2030, with a compound annual growth rate (CAGR) of 6.4% (2024-2030).

According to the Forward-looking Industry Research Institute, it is estimated that China's superalloy market will maintain an annualized growth rate of 9.4% or more during the 14th Five-Year Plan period, reaching about 34.2 billion yuan by 2026.

It is one of the core suppliers of superalloys, with a comprehensive layout of two aircraft, civil products and international markets. The company began to lay out the superalloy business in 2015. Cast superalloy master alloys first, and deformed superalloys opened up a wider space.

Market development: Comprehensive layout of dual aircraft, civilian products and international markets, the international market is expected to achieve rapid growth. 1) Domestic market: ① Domestic military aerospace sector: introduction and assessment of multiple grades of cast and deformed superalloys; ② Civil aviation: has entered the Yangtze River series engine product supplier selection catalogue; ③ Domestic combustion engine sector: The company supplies multiple gas engine hot end component suppliers in batches. 2) International market: Accelerate layout, make full efforts to introduce world-renowned aviation, gas engine, oil and gas industry customers, and achieve rapid international business growth. Among them, in the field of international civil aviation, the company has carried out supplier admission and review work with a number of internationally renowned engine companies, supplied batches to Rollo's global forging suppliers, and is also cooperating with Safran, Honeywell, and Collins Aerospace.

Technical side: At the leading level in the country. The company's technology for casting superalloy master alloys and deformed superalloys is at the leading level in China, and can produce deformed superalloys using the internationally mature and advanced domestic “vacuum sensing+electroslag remelting+vacuum self-consumption” triple melting process.

Production capacity side: High production capacity fully prepares for demand volume. According to the company's “2023 Annual Report”, the company has a total production capacity of 8,000 tons of high-temperature corrosion-resistant alloys, including 3,000 tons of cast superalloys and nickel-based corrosion-resistant alloys, and 5,000 tons of deformed superalloys.

Competitive pattern: The technical requirements of the industry are high, the barriers are relatively high, and the domestic and foreign competition pattern is stable.

Equity incentives drive the company to improve quality and efficiency, fully demonstrating confidence in growth. The company issued an equity incentive draft in August 2023. It plans to grant the 53 incentive recipients 5.5 million shares (2.23% of the total share capital) of Class II restricted shares for the first time, all at a price of 12.08 yuan per share. In September 2023, the company awarded 4.802 million shares for the first time (1.95% of total share capital). In terms of unlocking conditions, the first grant was based on 2022 superalloy revenue, and the target growth rate of 2023-2025 superalloy revenue compared to the base period was 50%/100%/150%, respectively. The introduction of the equity incentive plan will help maintain the long-term enthusiasm of management and core employees, and also demonstrates the company's confidence in the rapid expansion of the superalloy business.

Profit forecast: The net profit forecast for 2024-2026 is $90 million, $136 million, and $178 million, respectively, corresponding to 46/31/23 times the valuation. Excluding the impact of equity payment fees, the net profit forecast to mother was 121 million, 148 million, and 182 million yuan, respectively, corresponding to a valuation of 34/28/23 times. For the first time, it was given a “Highly Recommended” rating!

Risk warning: Risk of market development falling short of expectations and price fluctuations of raw materials.