occurrences

On June 29, Steel Research & Development Co., Ltd. announced plans to issue A shares to specific targets in 2024. The company plans to issue targeted shares to China Steel Research and Technology Group Co., Ltd., the controlling shareholder. The total amount of capital raised will not exceed 0.28 billion yuan, and the net amount of capital raised will be used to supplement working capital. The issue price of this fixed increase stock is 12.83 yuan/share (after implementation of the 2023 profit distribution plan).

reviews

1. Raise no more than 0.28 billion yuan in capital from controlling shareholders to optimize the company's capital structure.

The total amount of capital raised in this fixed increase is no more than 0.28 billion yuan, and the net amount of capital raised is to be used to supplement working capital. Raising capital helps meet the capital requirements of listed companies in the process of continuous business expansion and upgrading, and further enhances the capital strength of listed companies. The improvement of the capital structure and the increase in liquidity levels will consolidate the foundation for the company's sustainable development in various aspects such as business layout, financial situation, and long-term strategy, and create favorable conditions for enhancing the company's core competitiveness and achieving sustainable and high-quality development.

2. The basic infrastructure of the aerospace business is stable, and the company has fully benefited from strong downstream demand and an increase in the level of autonomy and control of basic materials. The company is one of the largest producers of high-end and new superalloy products in China. It has the annual production capacity of over 1,000 tons of superalloy master alloys for aerospace, as well as the production capacity of precision castings, deformed superalloy plate forgings, powder superalloys and ODS alloys for aerospace engines. More than 60% of the company's products are aimed at customers in the aerospace sector. With the continuous and steady development of the aerospace industry, various aviation and aerospace engines are in strong demand for testing, development, conversion and mass production of new products. On the other hand, in recent years, international geopolitical risks have increased, and raising the level of autonomy and control of key basic materials is the key to national development and security. The company's revenue continued to grow rapidly. In 2023, the company's revenue was 3.408 billion yuan, up 18% year on year; 2024Q1, the company's revenue was 0.799 billion yuan, up 29% year on year.

3. The diversified development of aerospace business and cross-field application expansion of superalloys have achieved remarkable results. In the aerospace sector, the company's business is diversified. In 2022, the company established a wholly-owned subsidiary, Sichuan Gaona, a holding subsidiary with Aerospace ****'an Steel Research, and Liaoning Gaona in 2023. In 2023, Xi'an Steel Research achieved revenue of 0.108 billion yuan and net profit of 20.85 million yuan. The company actively promotes cross-field application technology research and application expansion of superalloys in the fields of gas engines, glass manufacturing, metallurgy, petrochemicals, etc., and further opens up market size other than aerospace. In 2023, the subsidiary Xinlitong achieved revenue of 1.201 billion yuan, a year-on-year increase of 39%, and achieved net profit of 0.181 billion yuan, an increase of 251% over the previous year. Continued business expansion opens up the company's growth ceiling, and rapid long-term development can be expected.

4. Promote the transformation of the company and have broad room for growth. The company determines that the next 3-5 years will be a critical period for the development of the industry. The company will strive to achieve transformation within 3-5 years: the market will transform from domestic to domestic and international markets, products will gradually transform from raw materials to parts, and some products will expand from aero engines to the aviation, energy, and petrochemical fields. In 2024, the company will focus on the military market for aerospace and gas engine forging castings, vigorously expand the civil goods market for nuclear power, aircraft, petrochemicals, ships, etc., further explore the international petrochemical and international aeronautical forging and casting markets, and collaborate to develop new products in the market.

5. We expect the company's net profit to be 0.418, 0.554, and 0.728 billion yuan respectively in 2024-2026, corresponding to the current share price PE of 30, 22, and 17 times, respectively, to maintain a “buy” rating.

Risk warning

The increase in domestic superalloy self-sufficiency rate fell short of expectations; the company's business expansion fell short of expectations; the rise in raw material prices and the price reduction of superalloy products exceeded expectations, etc.