\u3000\u30 Xuchang Ketop Testing Research Institute Co.Ltd(003008) 55 Jiangsu Toland Alloy Co.Ltd(300855) )
Event overview
The company released the annual report of 2021 and the first quarterly report of 2022: in 2021, the company realized a revenue of 698 million yuan (+ 27.73%), a net profit attributable to the parent company of 181 million yuan (+ 66.24%), and deducted a net profit not attributable to the parent company of 164 million yuan (+ 73.51%); In 2022q1, the revenue was 212 million yuan (+ 42.15%), the net profit attributable to the parent company was 404011 million yuan (+ 11.86%), and the net profit not attributable to the parent company was 40.136 million yuan (+ 22.08%).
Analysis and judgment:
Downstream demand driven performance increased steadily, and the gross profit of each business segment increased significantly.
Benefiting from the rapid release of downstream demand, the company’s performance grew steadily. In 2021, it achieved a revenue of 698 million yuan (+ 27.73%) and a net profit attributable to the parent company of 181 million yuan (+ 66.24%). Each business segment achieved double growth in revenue scale and gross profit: 713 tons of cast superalloys were sold in 2021, with revenue of 291 million yuan (+ 45.41%) and gross profit margin of 51.13% (+ 6.04pct); 1354 tons of deformed superalloys were sold, with a revenue of 197 million yuan (+ 4.90%) and a gross profit margin of 28.11% (+ 2.46pct); 352 tons of special stainless steel were sold, with a revenue of 87 million yuan (+ 60.42%) and a gross profit margin of 42.28% (+ 7.02pct); 803 tons of other alloy products were sold, with a revenue of 109 million yuan (+ 29.44%) and a gross profit margin of 11.99% (- 1.30 PCT). Due to the increase in the proportion of aerospace products with high gross profit, the company’s comprehensive gross profit margin increased by 4.75pct to 37.31%.
In 2022q1, the revenue was 212 million yuan (+ 42.15%), the net profit attributable to the parent company was 404011 million yuan (+ 11.86%), and the gross profit margin decreased by 3.11pct to 34.02%, or it was related to the rise in the price of raw materials and the adjustment of product structure. Some products of the company were affected by the rising price of nickel, the main element, and the overall gross profit margin decreased slightly. The company mainly adopts the mode of setting production by sales, and there are corresponding material inventories in hand orders; If the nickel price remains high, the company will adjust the sales quotation (price transmission) according to market conditions, customer demand, whether it is a strategic customer, payment terms and other factors.
The period expense is affected by the amortization of equity incentive, and Q2 may be significantly improved.
In 2021, the company’s expense ratio was 13.80% (+ 1.22pct), mainly due to the implementation of equity incentive plan and the recognition of share based payment expenses in this period. Among them, the management fee rate is 6.39% (+ 2.02pct), which is mainly due to the implementation of equity incentive plan and the confirmation of share based payment expenses in this period; The R & D expense rate is 6.41% (+ 0.21pct), which is mainly due to the increase of R & D investment and the implementation of equity incentive plan in this period to confirm the share based payment expenses of R & D personnel; The financial expense ratio is -0.12% (-0.57pct), which is mainly due to the company’s abundant funds, the increase of interest income from bank deposits, and the decrease of interest expenses and exchange gains and losses.
During 2022q1, the company’s expense rate was 11.23% (+ 0.05pct), of which the sales expense rate, management expense rate, R & D expense rate and financial expense rate were 1.09%, 6.13%, 4.20% and – 0.18% respectively, with a year-on-year increase of -0.34pct, + 0.72pct, – 0.72pct and + 0.39pct. As the equity incentive of 2022q1 company is still in the first vesting period, the expense amortization is high (about 7.61 million yuan), while there is no equity incentive expense in the same period last year. Looking forward to 2022q2, equity incentive will enter the second vesting period, and the expense amortization will drop to 2.54 million yuan, compared with 7.61 million yuan in the same period last year. During this period, the expense may be significantly improved.
The advantages of the whole industrial chain and high gross profit precision castings enhance the profitability.
The company has mastered the whole industrial chain production process from melting to profile (bar, pipe, wire, etc.) and casting (precision casting gearbox, etc.) and is one of the few enterprises in China that can simultaneously mass produce deformed superalloy and cast superalloy (parent alloy, precision casting) products. It is an important supplier of large complex thin-walled superalloy structural parts for Aeroengines in China.
Large thin-wall complex precision castings are the company’s high gross profit products. The castings produced by the company have high dimensional accuracy, small machining allowance and thin wall thickness, which can meet the needs of the development of advanced aviation equipment in the direction of lightweight, precision, long life and low cost. The company has a perfect precision casting system for large-scale complex thin-walled parts, master the advanced near net shape investment casting technology, take the lead in mass production of large-scale superalloy precision castings with diameter greater than 1000mm and wall thickness less than 2mm in China, and has the ability to provide stable supply for Aeroengine manufacturing enterprises. At the same time, the company is also one of the few enterprises in China that produce both casting superalloy parent alloy (material) and large superalloy complex thin-walled precision castings (terminal products). It has formed a whole industrial chain system of large superalloy complex thin-walled precision castings. The construction of production capacity of the whole industrial chain effectively ensures product quality and production efficiency, and the efficient coordination of internal processes effectively reduces product manufacturing costs.
New products, new businesses and new production capacity help the company’s long-term development.
In terms of new product research and development, the company has successively completed the trial production and verification of DZ40M, DZ417G directional casting superalloy master alloys and k417g, k40m, K465 and other axial casting superalloy master alloys, and will gradually enter the batch production stage; The development of deformed superalloy rods and wires for fasteners such as GH2132, GH4169 and GH4738 has been completed, and some products have been supplied in batches; Complete the trial production of multiple models of precision castings; Complete the development of Seamless High-Strength pipes for aviation. With the gradual realization of mass production of supporting developed products, it is expected to contribute to the sales revenue of the company during the 14th Five Year Plan period.
In terms of business development, the company invested and established a wholly-owned subsidiary Shenyang Tunan in July 2021, and carried out the construction of aviation small and medium-sized parts automatic processing production line project through Shenyang Tunan. The project has been approved by relevant departments and environmental review. After the implementation of the project, it is expected that the construction scale of processing and production capacity of 500000 pieces (sets) of small and medium-sized parts for aviation can be formed in the year of reaching production capacity, which will help the company realize the extension and expansion of product range and further enhance the core competitiveness of the enterprise.
In terms of raised investment projects, the “construction project of ultra pure high-performance superalloy materials with an annual output of 1000 tons” has completed the installation and commissioning of some equipment, a vacuum induction furnace has been in normal production, and some equipment of the “construction project of complex thin-walled superalloy structural parts with an annual output of 3300” is under installation and commissioning. The two projects strive to be completed this year. With the continuous production of raised investment projects, the production capacity bottleneck of the smelting end of the company will be effectively alleviated, and the production capacity of 3300 high margin precision castings at the parts end will effectively enhance the profitability of the company.
Investment advice
The company is the target of scarce military superalloy materials + parts. The core benefits from the high boom demand of aeroengine and the development mode of “small core and large cooperation” of aeroengine industry. Taking into account the strong downstream demand, rising prices of raw materials and other factors, we adjusted the company’s revenue forecast for 20222023 from 943 / 1157 million yuan to 909 / 1119 million yuan, and EPS from 123 / 1.61 yuan to 1.21 / 1.63 yuan. It is expected to achieve revenue of 909 / 1119 / 1388 million yuan, net profit attributable to the parent company of 242 / 326 / 427 million yuan, EPS of 121 / 1.63 / 2.14 yuan, corresponding to the closing price of 41.88 yuan / share on April 29, 2022, and PE of 35 / 26 / 20 times respectively, Maintain the “buy” rating.
Risk tips
The risk of raw material price rise, the risk of high customer concentration, the risk that the market development of new products is less than expected, the risk that the production expansion progress and capacity release are less than expected.
