\u3000\u30 Xuchang Ketop Testing Research Institute Co.Ltd(003008) 55 Jiangsu Toland Alloy Co.Ltd(300855) )
Event: the company announced on April 19 that in 2021, the revenue was 698 million yuan (+ 27.73%), the net profit attributable to the parent was 181 million yuan (+ 66.24%), the gross profit margin was 37.31% (+ 4.75pcts), and the net profit margin was 25.98% (+ 6.01pcts). Meanwhile, in 2022q1, the revenue was 212 million yuan (+ 42.15%), and the net profit attributable to the parent company was 40 million yuan (+ 11.86%).
Key investment points:
Improve profitability to the best in history; The quantity and price of cast superalloy products rise at the same time
In 2021, the company’s operating revenue was 698 million yuan (+ 27.73%), and the net profit attributable to the parent company was 181 million yuan (+ 66.24%). The gross profit margin of the company is 37.31% (+ 4.75pcts) and the net profit margin is 25.98% (+ 6.01pcts), both of which are the best levels in history.
In 2022q1, the company’s operating revenue was 212 million yuan (+ 42.15%), which was the best single quarter revenue after listing; The net profit attributable to the parent company was 40 million yuan (+ 11.86%). The gross profit margin was 34.02% (- 3.11pcts), which fell. The company was engaged in superalloy business, and the gross profit margin fell or was impacted by the rise of electrolytic nickel at the beginning of the year; The net profit margin is 19.05% (- 5.16pcts). In addition to the decline in gross profit margin, the management expenses of the company in this period include part of the implementation of equity incentive plan and the confirmation of share based payment expenses.
From the perspective of product and revenue structure, the company’s products mainly include cast superalloy products, deformed superalloy products, special stainless steel and other alloys.
Cast superalloy products include master alloy and precision castings. The products are mainly used in the aviation field. The volume of cast superalloy products increased steadily with a sales volume of 712.93 tons (+ 10.35%), and the revenue increased rapidly (291 million yuan, + 45.41%). At the same time, thanks to its whole industrial chain capacity and technical strength, the unit weight value of cast superalloy products continued to increase, the unit price increased to 408100 yuan / ton (+ 31.78%), and the gross profit margin was 51.13% (+ 6.04pcts).
Deformed superalloy products are mainly used in the fields of gas turbine and petrochemical industry, and some are used in the fields of aircraft and aeroengine. The sales volume, unit price, revenue and gross profit margin of deformed superalloy products maintained a relatively stable growth.
Special stainless steel mainly includes stainless steel seamless pipes and bars. Seamless pipes are mainly used in the manufacturing of various pipes, oil pipelines of aeroengines and hydraulic pipelines of aircraft fuselage. Bars are mainly used in the manufacturing of high-end equipment such as aviation, national defense and military industry and new energy fields such as nuclear power. The sales volume of special stainless steel (351.91 tons, + 53.06%) and revenue (87 million yuan, + 60.42%) increased rapidly, and the gross profit margin increased significantly (42.28%, + 7.02 PCTs).
Other alloy products mainly include precision alloy, high resistance electrothermal alloy, welding wire and other products, which are mainly used in civil fields such as petrochemical industry and electronic industry. The company mainly produces and sells other alloy products to improve the utilization value of residual recycled metal raw materials after smelting of main products, which belongs to the business with low gross profit margin.
In terms of expenses, in 2021, the company’s sales expense ratio was 1.12% (-0.43pcts); The management fee rate is 6.39% (+ 2.02pcts), which is mainly due to the implementation of equity incentive and the recognition of share based payment expenses during the reporting period; The financial expense ratio is – 0.12% (- 0.57 PCTs); The R & D expenditure rate was 6.41% (+ 0.21pcts), with a steady growth. Taken together, the period cost rate is 13.80% (+ 1.22pcts).
At the end of the reporting period, the company’s inventory was 320 million yuan (+ 65.74%), of which raw materials increased more; The company sets production based on sales, and increases production and preparation in order to ensure delivery; At the end of the reporting period, the amount of revenue corresponding to the performance obligations that have signed contracts but have not been performed or completed is 513 million yuan, of which 462 million yuan is expected to be recognized in 2022, with sufficient orders on hand.
The core supplier of the whole industry chain of superalloys continues to maintain the leading advantage of product differentiation
The superalloy industry has the characteristics of high technical content, relatively complex preparation process and high processing difficulty. China is one of the few countries in the world with superalloy production system. Although China’s superalloy industry has made considerable progress, there are still some deficiencies compared with the world’s advanced level. The number of enterprises engaged in China’s superalloy industry is small, the overall technical development level still lags far behind the international advanced level, and the overall production capacity and actual effective production capacity are small, especially the effective production capacity of high-end aviation superalloys is far from meeting the growing market demand. At present, there is a competition and cooperation relationship among Chinese enterprises, and there is less direct competition.
By focusing on the market segments in the industry, the company has formed the technical commanding heights in the subdivided fields and explored the market with differentiated competition and technical services; It is an important supplier of large-scale complex thin-walled superalloy structural parts for Aeroengines in China and a major supplier of superalloys and stainless steel seamless tubes for aircraft and aeroengines in China. It has undertaken the supporting scientific research and production tasks of many key types of aeroengine materials and key components in China.
① cast superalloy products series
In terms of cast superalloy, at present, the production units engaged in the smelting of cast superalloy that can be used in the aerospace field in China are mainly Beijing Academy of aeronautical materials, Institute of metals, Chinese Academy of Sciences, Gaona Aero Material Co.Ltd(300034) and Jiangsu Toland Alloy Co.Ltd(300855) and other units. The casting superalloy master alloy produced by the company is mainly sold to Chinese aeroengine manufacturers for their production of precision castings.
In terms of large-scale superalloy complex thin-wall precision castings, at present, Anji casting and Jiangsu Toland Alloy Co.Ltd(300855) are the main manufacturers in China to produce large-scale superalloy complex thin-wall precision castings, among which Jiangsu Toland Alloy Co.Ltd(300855) is the first to realize the mass production of large-scale superalloy precision castings with diameter greater than 1000mm and wall thickness less than 2mm in China, with high dimensional accuracy, small machining allowance and thin wall thickness, It has formed the ability of stable supply for Aeroengine manufacturing enterprises.
The company is one of the few enterprises in China that produce both casting superalloy master alloy and large superalloy complex thin-walled precision castings. It has formed a whole industrial chain system of large superalloy complex thin-walled precision castings, and has strong ability to control product quality and cost.
During the reporting period, the company continued to invest in the research and development of cast superalloy products, successively completed the trial production and verification of DZ40M, DZ417G directional cast superalloy master alloys and k417g, k40m, K465 and other axial cast superalloy master alloys, and will gradually enter the batch production stage.
② deformed superalloy series
There are two types of manufacturers engaged in deformed superalloy series products in China: one is Fushun Special Steel Co.Ltd(600399) , Baosteel Special Steel, Great Wall Special Steel and other large iron and steel enterprises, which produce large quantities of alloy sectors, bars and forgings; The other is the research and production base represented by Institute of metals, Chinese Academy of Sciences, Beijing Institute of Aeronautical Materials and Gaona Aero Material Co.Ltd(300034) which has the manufacturing capacity of partially deformed superalloys.
The company’s deformed superalloy series products are mainly bars, wires and pipes, which have a strong attraction to customers with strict delivery cycle. The company’s production line covers a wide range of specifications, forming the production management advantages and collaborative supply capacity of products with many varieties, small batch and complex structure. It has a strong ability in supporting projects and solving user needs, which increases the stickiness of customers.
During the reporting period, the company completed the development of deformed superalloy rods and wires for fasteners such as GH2132, GH4169 and GH4738, and some products have been supplied in batches.
③ special stainless steel series
At present, the main manufacturers of special stainless steel seamless pipes for aviation in China are great wall special steel, Baosteel Special Steel, Chongqing Iron and Steel Research and other enterprises, as well as Jiangsu Toland Alloy Co.Ltd(300855) . The low qualification rate of stainless steel seamless pipe for aviation has always been a difficult problem for Chinese aviation enterprises. The company has eliminated the shortcomings of traditional pipe making process, carried out high-precision seamless pipe manufacturing technology development and technological innovation, and manufactured high-quality stainless steel seamless pipe with stable comprehensive performance and excellent quality, occupying a prominent market position in China’s aviation pipe.
IPO raised investment projects will reach production in 2022, with an additional 160 million invested in aviation small and medium-sized parts production line projects
The company was first listed in July 2020 and raised 526 million yuan. During the reporting period, the IPO raised and invested steadily, which is used for the construction project of ultra-pure high-performance superalloy materials with an annual output of 1000 tons. It is expected to reach the production capacity in July 2022 and contribute RMB 191 million to the company every year after reaching the production capacity; The construction project with an annual output of 3300 complex thin-walled superalloy structural parts is expected to reach production in December 2022. After that, it can contribute 130 million yuan of revenue to the company every year.
In addition, the company announced on November 18, 2021 that Shenyang Tunan, a wholly-owned subsidiary, plans to invest 160 million yuan with its own funds to carry out the construction of automatic processing production line project of small and medium-sized parts for aviation. It is expected that the construction scale of processing production capacity with an annual output of 500000 pieces (sets) of small and medium-sized parts for aviation can be formed in the year of reaching production capacity.
The rise of raw materials may put pressure on the company’s gross profit margin in the short term
The main raw materials of the company’s products are electrolytic nickel, metal cobalt, metal chromium and other metal materials, and the price fluctuation has a great impact on the purchase price of raw materials in the industry. According to the disclosure in the prospectus, taking 2019 as an example, the company’s operating revenue was 484 million yuan, with a gross profit margin of 32.76%; The main business cost of the company is mainly raw materials, accounting for 63.62% of the revenue. If the price of electrolytic nickel increases by 10% in the current period, the impact on the gross profit margin of the main business is – 1.77%. Since the beginning of the year, the price of electrolytic nickel has increased significantly, which may affect the gross profit margin of the company in the short term.
In the medium and long term, the company’s pricing mainly adopts the product cost plus method, that is, based on the spot market price of electrolytic nickel and other metals, floating a certain proportion of processing fee, and making appropriate adjustments with reference to market conditions, customer demand, long-term customers, payment terms, strategic cooperation and other factors; The impact of rising raw materials may be appropriately transmitted to the downstream; On the other hand, with the increase of the company’s scale, the product categories increase and the value continues to increase; Meanwhile, with the gradual return of raw material prices to a reasonable range, the gross profit margin will gradually recover and is expected to be further improved.
In addition, in March 2021, the company announced that it would grant 2.68 million restricted shares (accounting for 1.34% of the total share capital) to 31 incentive objects at the price of 18.58 yuan / share. Based on 2020, the growth of operating revenue and net profit in 2021 will not be less than 15% and 16% respectively, and it has reached the standard in 2021; In 2022, the growth of operating revenue and net profit shall not be less than 30% and 32% respectively. Equity incentive is bound to core employees, which will also help the long-term development of the enterprise.
Investment advice
① the profitability of the company in 2021 was the best in history, with a large amount of cast superalloy products. The company’s inventory is 320 million yuan; At the end of the reporting period, the amount of revenue corresponding to the performance obligations that have signed contracts but have not been performed or completed is 513 million yuan, of which 462 million yuan is expected to be recognized in 2022, with sufficient orders on hand.
② with the increasing volume of military aircraft and civil aircraft, the progress in the R & D and manufacturing of domestic aeroengines and the continuous improvement of the localization rate of large aircraft, the demand for superalloy materials will usher in greater growth space and import substitution space in the future. The company is the core supplier of the whole industry chain of superalloys. Maintaining the leading advantage of product differentiation, the company will continue to benefit from the high outlook of the industry.
③ at present, the effective production capacity of China’s high-end aviation superalloys is far from meeting the growing market demand and is in short supply. The company’s IPO projects will reach production capacity in 2022. Meanwhile, in November 2021, it was announced that the wholly-owned subsidiary will invest 160 million in the production line project of small and medium-sized parts for aviation, and the production capacity will be gradually released, which will lay a solid foundation for subsequent performance growth.
Based on the above point of view, we expect the company’s operating revenue from 2022 to 2024 to be 954 million yuan, 1224 million yuan and 1520 million yuan respectively, the net profit attributable to the parent company to be 213 million yuan, 282 million yuan and 367 million yuan respectively, and EPS to be 107 million yuan, 141 million yuan and 184 million yuan respectively. We maintain the buy rating, and the target price is 55.00 yuan, corresponding to 52 times, 39 times and 30 times PE respectively.
Risk warning: the promotion of raised investment projects is not as expected; Raw material price fluctuation risk.
