Western Superconductor released its three-quarter report: 2024Q1-Q3 achieved revenue of 3.235 billion yuan (yoy +4.76%), net profit of 0.604 billion yuan (yoy +3.62%), deducting non-net profit of 0.533 billion yuan (yoy +4.04%). As a new material link in the upstream military aircraft industry chain, the company's 24Q1-Q3 has achieved steady growth in revenue and profit, or indicates that demand in the military aircraft chain has begun to recover. It is optimistic that the company will return to a high growth trajectory in the future and maintain a “buy” rating.

Both revenue and profit increased year-on-year in a single quarter

Looking at a single quarter, 2024Q3 achieved revenue of 1.215 billion yuan, +24.43% YoY, -0.99% month-on-month; net profit to mother 0.255 billion yuan, +58.04% YoY, +7.22%. Net profit attributable to mother increased year-on-year in a single quarter, mainly due to revenue growth, an increase in government subsidies for the current period (2024Q3 was 45.8193 million yuan, +101.94% year over year) and a decrease in current R&D expenses compared to the same period (2024Q3 was 52.6055 million yuan, -32.46% year over year).

The company has plenty of orders in hand and is actively preparing for production and preparation

As of the end of the 2024Q3 period, the company's accounts receivable were $3.147 billion, +52.80% from the beginning of the year; the company's inventory was $3.631 billion, +8.64% from the beginning of the year; the company's contract liabilities were $0.191 billion, +35.12% from the beginning of the year; and prepaid accounts were $91.2348 million, +108.67% compared to the beginning of the year. Inventories, contract liabilities, etc. are higher than at the beginning of the year, which may indicate that the company has plenty of orders and is actively preparing for production and preparation.

The fund-raising project has reached production, and the superconducting business is expected to open up room for growth

The company's fund-raising investment project “High Performance Superconducting Wire Industrialization Project” was completed on April 30, 2024 and reached the expected production capacity target. As of September 30, 2024, the project is expected to save 77.7404 million yuan in capital raised. The company plans to permanently supplement the working capital raised from this project. 1) High-end titanium alloy materials: The company successfully completed the delivery of various products, and the titanium alloy development tasks in the marine, weapons, nuclear industry and other fields are progressing smoothly; 2) Superconducting products: The company completed the delivery tasks of superconducting wires for the domestic nuclear fusion CRAFT project and supplied them in batches for BEST fusion projects; 3) High-performance superalloys: the entire phase II production line was completed, thermal testing was completed, and trial production started.

Lower profit forecasts and maintain “buy” ratings

Considering that the company's superalloys are mainly grade imports in the short term, we lowered the company's superalloy revenue forecast. The company's 2024-2026 EPS is expected to be 1.29/1.73/2.14 yuan, respectively (previous value was 1.39/1.78/2.23 yuan). Comparatively, the company's 25-year Wind unanimously expected an average PE value of 24 times. Considering that the company's superalloy and superconducting business gradually entered a high-growth trajectory, opening up long-term growth space and scarcity, the company was given 34 times PE in 25 years, with a target price of 58.82 yuan (previous value of 41.70 yuan) to “buy”.

Risk warning: Demand for military aircraft and civil aviation helicopters falls short of expectations; progress of new projects falls short of expectations.