\u3000\u3 Guocheng Mining Co.Ltd(000688) 239 Guizhou Aviation Technical Development Co.Ltd(688239) )
Event: the company announced on March 16 that in 2021, the operating revenue was 960 million yuan (+ 43.11%), the net profit attributable to the parent company was 139 million yuan (+ 91.13%), the net profit not attributable to the parent company was 124 million yuan (+ 76.25%), the gross profit margin was 32.60% (+ 3.76 PCTs), and the net profit margin was 14.48% (+ 3.64 PCTs).
Key investment points:
During the reporting period, the company’s operating revenue was 960 million yuan (+ 43.11%). During the reporting period, the downstream market showed good prosperity and increased customer demand. At the same time, it also benefited from the company’s continuous development and deep cultivation of various market fields in previous years, and the scale of revenue continued to grow. The net profit attributable to the parent company was 139 million yuan (+ 91.13%), and the net profit not attributable to the parent company was 124 million yuan (+ 76.25%), which were higher than the growth rate of revenue. The net profit attributable to the parent company performed more brilliantly, nearly doubling the growth over the same period of the previous year. The gross profit margin is 32.60% (+ 3.77 PCTs) and the net profit margin is 14.48% (+ 3.64 PCTs), which is the best level in the same period of recent five years; The weighted average return on net assets was 17.44% (+ 3.36pcts), and the profitability was further improved.
Aviation forgings are still the main driver of performance growth. During the reporting period, the company’s aviation forging business achieved a revenue of 669 million yuan (+ 29.99%), accounting for 70.91%. Benefiting from the continuous growth of downstream demand and the continuous promotion of the industrialization of customer product models involved in supporting development in the early stage, the company’s ring forgings have maintained a relatively high growth in recent years, with a compound growth rate of revenue of 52.42% in recent five years. During the reporting period, the company’s domestic and foreign business continued to expand. In terms of domestic business, the company actively participated in the market competition of ring forgings of batch production and in-service models, followed closely with the pre research, and was awarded the title of gold supplier by a unit subordinate to China Aviation Development Group. In addition, as the core research and development unit of ring forgings for independent engines of domestic commercial large aircraft, with the continuous promotion of the development of Changjiang series engines, the market demand is also gradually increasing; In terms of overseas market, this part of business has gradually got rid of the impact of the epidemic and entered the recovery process. At the same time, during the reporting period, the company successfully participated in the product bidding of one engine model of SaiFeng, and signed a long-term agreement with Pratt Whitney, GE and RORO on the models successfully won the bid last year, further expanding the company’s market share in international business.
The market expansion of Aerospace Forgings has achieved results and nearly doubled its growth. During the reporting period, the aerospace forging business achieved a revenue of 150 million yuan (+ 97.71%), accounting for 15.86%. During the reporting period, the company’s aerospace forging revenue increased significantly. On the one hand, the volume base in the early stage of the aerospace forging business was relatively small. On the other hand, with the continuous strengthening of the company’s process manufacturing technology and the further increase of market expansion, the above factors combined to drive the company’s aerospace forging business growth and revenue contribution to continue to improve, with a compound growth rate of 47.75% in the past five years. During the reporting period, the company was awarded the title of excellent supplier by a subordinate unit of China Aerospace Science and industry and a subordinate unit of China Aerospace Hi-Tech Holding Group Co.Ltd(000901) respectively, and the customer recognition increased.
The revenue of gas turbines and energy products accounts for a relatively small proportion, the downstream shows a good prosperity, the customer demand is further improved, and the performance growth is bright. In the field of gas turbine, the revenue was 38 million yuan (+ 60.54%), accounting for 4.03%; The energy sector achieved a revenue of 65 million yuan (+ 112.41%), accounting for 6.85%.
In terms of expenses, the company’s three expenses rate was 9.51% (-0.09pcts), which further decreased compared with the previous year, including sales expenses rate of 1.83% (+ 0.21pcts), management expenses rate of 6.08% (+ 0.37pcts) and financial expenses rate of 1.59% (-0.67pcts), which may indicate that the company’s market expansion was strengthened, business development continued to improve, the number of employees increased, and the sales expenses rate and management expenses rate increased slightly during the reporting period; The availability of raised funds will help the company optimize its capital structure and further reduce its financial expenses.
The company’s R & D expenses increased significantly by 49 million yuan (+ 79.99%), and its revenue accounted for 5.07% (+ 1.04 PCTs), a significant increase over the previous year. During the reporting period, the company continued to increase R & D investment and planned R & D innovation work with “application generation, R & D generation and reserve generation”. During the reporting period, the company’s invention patent of “manufacturing method and mold of 1Cr11Ni2W2MoV alloy runway shaped mounting edge” won the 22nd China Patent Excellence Award issued by the State Intellectual Property Office, and four authorized patents were added.
At the end of the reporting period, the company’s inventory was 574 million yuan (+ 40.36%), of which the relatively large raw materials (281 million yuan, + 49.43%) and products in process (17 million yuan, + 109.04%) maintained rapid growth. Generally speaking, the increase of raw materials and products in process also showed that the company actively prepared goods and organized production to cope with the rapid growth of downstream demand.
Downstream demand is booming, with full orders in hand for long-term development
The company’s products can be applied to 70 aeroengine models, including the new generation of domestic military aeroengines, the Yangtze River series of domestic commercial aeroengines, the international mainstream narrow body and wide body passenger aircraft, the new generation of aeroengines and other advanced aeroengines at home and abroad. In the field of military aircraft, with the finalization and batch production of models, the improvement of quality and quantity of military aircraft and the continuous promotion of upgrading, the company’s military products business is expected to continue to grow at a high rate; In the field of civil aircraft, in the long run, the global aviation field will have a good growth trend in the future. Whether in the field of narrow body passenger aircraft or wide body passenger aircraft, the aeroengine market and aviation ring forgings have broad market prospects.
The company was first listed in July 2021 and raised funds for “construction project of precision manufacturing industrial park of special alloy ring rolled forgings for aeroengine and gas turbine”. The total investment of the project is 600 million yuan to build precision ring forging production line, heat treatment production line and machining production line. At present, it has entered the stage of equipment installation and commissioning, which is expected to be put into operation within the year. It is expected to enter the stage of reaching production in 2023, with a sales revenue of 1.162 billion yuan.
In general, due to the obvious market entry barriers in the aviation forging industry, the company has certain sustainability and exclusivity in the production of existing models. In the expansion of new models, the company also has the advantage of market first entry, which is reflected in the hand orders. By the end of the reporting period, the company’s hand orders were 1.22 billion yuan (+ 48.78%) significantly higher than the same period of last year. In the future, with the steady improvement of the prosperity of the company’s downstream fields and the gradual release of superimposed production capacity, the company’s performance is expected to maintain high-speed growth.
Share in Chongqing Sanhang new materials, collaborative innovation and key technology research, and consolidate the company’s core competitiveness
During the reporting period, the company signed agreements with Chongqing lianghang metal materials Co., Ltd. and Chongqing jinshili Aviation Materials Co., Ltd. to increase the capital of Chongqing Sanhang New Material Technology Research Institute Co., Ltd. after the capital increase, the shareholding ratio of the company was 16.5%.
Chongqing Sanhang New Material Co., Ltd. was founded in August 2020. At present, Chongqing Sanhang New Material Co., Ltd. has jointly established Chongqing Aerospace key parts precision hot processing and intelligent equipment manufacturing innovation center with more than 20 scientific research institutes, enterprises and universities, including China Aerospace Manufacturing Technology Research Institute, the Seventh Five Year Research Institute of China Cssc Holdings Limited(600150) Heavy Industry Corporation, Northwest Nonferrous Metals Research Institute, Chongqing Science and innovation center of West University of technology, etc, The center has been recognized as the first batch of Chongqing manufacturing innovation centers in January 2022. In the future, it will focus on the R & D layout of key core technologies and manufacturing capacity of precision hot processing of large and complex components of aerospace equipment. It is expected to absorb 5-10 advantageous enterprises and institutions in related fields every year in the next three years.
The company’s participation in Sanhang new materials this time has a good synergy in terms of technology R & D and business development. The subsequent innovation center related enterprises including Sanhang new materials are expected to further cooperate to carry out the transformation and industrialization of relevant achievements, and help the company further consolidate its industrial position in the field of Aerospace ring forgings.
The business is growing rapidly, and it is proposed to raise additional funds to help the subsequent expansion
On March 16, 2022, the company announced the proposal on requesting the general meeting of shareholders to authorize the board of directors to handle matters related to the issuance of shares to specific objects through simple procedures, which plans to issue financing to specific objects with a total amount of no more than RMB 300 million, raise funds and invest in projects related to the company’s main business and supplement working capital; In addition, the company applied for a comprehensive credit line with a total amount of no more than 2.5 billion yuan in December 2021 and March 2022, respectively, for the daily production, operation and business development of the company and Telan aerospace.
The company’s recent large-scale fund-raising needs, we believe that it is the strong evidence of the continuous expansion of the business scale of the company and Delan aerospace, as well as the active cooperation and participation in the synchronous research and development of aeroengine complete sets of the main engine factory subordinate to China aviation development, and the participation in the development of new processes and new products related to the new generation of military aeroengines.
Investment suggestions:
\u3000\u30001. The net profit attributable to the parent company increased by 91.13% year-on-year, aviation forgings and Aerospace Forgings continued to grow, the gross profit margin and net profit margin increased, and the profitability of the company continued to rise.
\u3000\u30002. The company’s products can be applied to 70 aeroengine models, including the new generation of domestic military aeroengines, the Yangtze River series of domestic commercial aeroengines, the international mainstream narrow body and wide body passenger aircraft, the new generation of aeroengines and other advanced aeroengines at home and abroad. Due to the obvious market entry barriers in the aviation forging industry, the company has certain sustainability and exclusivity in the production of existing models. In the expansion of new models, the company also has the advantage of market first entry, which is reflected in the hand orders. By the end of the reporting period, the company’s hand orders were 1.22 billion yuan (+ 48.78%) significantly higher than the same period of last year. In the future, with the steady improvement of the prosperity of the company’s downstream fields and the gradual release of superimposed production capacity, the company’s performance is expected to maintain high-speed growth.
\u3000\u30003. The company’s participation in Sanhang new materials is expected to produce good synergy from the aspects of technology R & D and business development. In the future, it is expected to further cooperate with relevant enterprises in the aerospace key parts precision hot processing and intelligent equipment manufacturing innovation center established with Sanhang new materials, and carry out the transformation and industrialization of relevant achievements, so as to help the company further consolidate its industrial position in the field of aerospace ring forgings.
Based on the above point of view, we estimate that the company’s operating revenue from 2022 to 2024 will be 1.315 billion yuan, 1.76 billion yuan and 2.307 billion yuan respectively, the net profit attributable to the parent company will be 198 million yuan, 261 million yuan and 331 million yuan respectively, and the EPS will be 141 million yuan, 186 yuan and 236 yuan respectively. We give the target price of 67.87 yuan, corresponding to 48 times, 36 times and 29 times PE respectively.
Risk warning: raw material price fluctuation risk; The finalization and batch production progress of military products is less than expected; Impact of epidemic situation and trade friction on overseas business; The progress of raising and investment is less than expected
