Gaona Aero Material Co.Ltd(300034) (300034)
PCC: a leading global superalloy platform enterprise. Buffett privatized PCC with us $37.2 billion in 2016. PCC is a two machine parts enterprise covering high-temperature alloy materials and processing (investment casting and forging). Based on the continuous growth of downstream two machine orders, large space for two machines and high barriers, PCC has created a high-quality business model. From 2006 to 2015, PCC’s net profit and operating cash flow CAGR reached 17.78% and 24.85%.
PCC’s growth path mainly includes: 1. Deeply cultivate the main business, build a high-temperature alloy platform enterprise, and deeply layout the global two machine industries from material to processing; 2. Pay equal attention to endogenesis and extension, and build an aviation parts production system based on platform layout; 3. Expand the application and grasp the market demand in gas turbine and industrial fields.
Gaona Aero Material Co.Ltd(300034) : the strategy is clear and aims to build PCC in China. It is a rare superalloy platform enterprise in China that can become PCC. Gaona Aero Material Co.Ltd(300034) has become one of the enterprises with the largest production scale of high-end and new high-temperature material products in China. It not only vigorously expands the field of aerospace engines and large-scale power generation equipment, but also continues to expand to the fields of metallurgy, chemical industry, glass manufacturing and so on. From January to September 2021, Gaona Aero Material Co.Ltd(300034) achieved revenue (1.425 billion yuan, + 33.39%), net profit attributable to the parent company (253 million yuan, + 94.75%), overall gross profit margin of 30.38% and net profit margin of 19.20%. The strategic goal of Gaona Aero Material Co.Ltd(300034) is clear and aims to build China’s PCC. The foundation and advantages lie in:
1. Self Foundation: it has been deeply engaged in the research, development and production of Superalloys for 60 years. It is a rare platform enterprise in China with a comprehensive layout of deformation, casting, powder and other models, and a full layout of the industrial chain from materials to finished products. The company has developed more than 120 kinds of superalloys, including more than 90 kinds of deformed superalloys and more than 10 kinds of powder superalloys, accounting for more than 80% of this type of alloy in China. Gaona Aero Material Co.Ltd(300034) has deeply participated in the two machine superalloy industry chain. Casting / deformation / new superalloys have a high market share in the two machine fields, which will significantly benefit from the continuous growth of the demand of the two machine industries.
2. Industry Dongfeng: build a trillion yuan high-temperature alloy track through comprehensive war preparation capacity construction. 1) The acceleration of mass production of the main model represented by WS-10 will bring a good scale effect to the company’s large single products; 2) Many new types of Hangfa have entered the stage of intensive finalization and batch production; 3) Under the background of increasing actual training intensity, the post maintenance market is rapidly opening, and Gaona Aero Material Co.Ltd(300034) with in-depth layout of aircraft maintenance market is expected to benefit greatly; 4) Domestic commercial aviation launch batch production will bring greater growth space.
3. Growth path: similar to the growth path of PCC, with equal emphasis on main business, extension and industrial chain extension, it is expected to build China’s PCC.
1) In terms of main business, focus on the two machine fields, build a platform company of superalloy materials + products with superalloy materials as the core, endogenous growth, pay close attention to the explosive demand of the aeroengine market, and bring huge growth space from the penetration of new models to the rapid expansion of the maintenance market.
2) In terms of extension, Qingdao Xinli was acquired to expand the field of Superalloy centrifugal casting pipe and static casting, and open the market of petrochemical and metallurgical industries.
3) In terms of industrial chain extension, Hebei Dekai, a subsidiary, has opened the international aerospace market since 2019. At present, it is the highest level of aluminum alloy investment casting technology in China’s aerospace field, the first-class titanium alloy casting technology in China, and the only enterprise in China that can realize industrialized magnesium alloy investment casting and production; In 2021, the strategic layout of metal additive manufacturing powder and other business areas will provide new momentum for the company’s future development.
Investment suggestion: Gaona Aero Material Co.Ltd(300034) aims to become a PCC in the field of two machines in China. It takes superalloy materials as the core, expands the industrial chain and value chain horizontally and vertically, and has a clear growth path and large space. In particular, it will grow rapidly by taking the east wind of the industry and relying on its platform product layout. We estimate that the net profit attributable to the parent company from 2021 to 2023 will be RMB 351 million, RMB 583 million and RMB 811 million respectively, and the corresponding PE will be 76x, 46x and 33x respectively. It will be covered for the first time and given a “buy” rating.
Risk tips: 1) the industrialization process of the company’s products is not as expected; 2) Military prices have fallen too much.
