Events:
On the evening of August 23, 2021, the company released its semi-annual report of 2021: 2021H1 realized revenue of 226 million yuan, an increase of 100% over the same period last year, and a net profit of 108 million yuan, an increase of 90% over the same period last year, in line with expectations, deducting 106 million yuan of non-return net profit, an increase of 104% over the same period last year.
Comments:
1) the main engine factory's key model volume + capacity release, the performance improves rapidly, and the advantage of the whole aviation process is highlighted.
2021H1 achieved a revenue of 226 million yuan (+ 100%) and achieved a rapid improvement in performance, mainly due to the gradual mass production of the relevant military products participated by the company on the one hand, and the continuous growth of orders; on the other hand, the production capacity of related processes of the company has been released one after another, and special processes continue to increase production capacity while improving the utilization rate of production capacity. With the development of China's aerospace industry and the gradual expansion of key models of major customers, the company's advantages in the whole process capability of aviation parts are highlighted, and the core benefits from the expansion of the market scale of the industry.
Production capacity is gradually released in a single quarter, and annual performance growth is expected. 2021Q2 realized revenue of 118 million yuan (+ 84%) and net profit of 61 million yuan (+ 101%). Both revenue and profit were the highest in history, reflecting the continuous release of production capacity to contribute to performance. Considering that the company's revenue is confirmed in the second half of the year, especially in the fourth quarter, we believe that with the gradual release of production capacity, the company's annual performance growth can be expected.
2) the rise and fall of volume and price is in line with the general market law, the gross profit margin has decreased, but the expense rate has been greatly improved during the period, and the overall profitability is still at a high level. 2021H1 achieved a net profit of 108 million yuan (+ 90%, deducting 104% growth in non-net profit, which is higher than revenue). The growth rate of net profit is slightly higher than revenue, gross profit margin and expense rate: 2021H1 gross profit decreased by 11.04pct to 62.67% compared with the same period last year, on the one hand, business growth, staff compensation, equipment depreciation increased, at the same time, compared with the same period last year, the impact of differences in the structure of settlement products In addition, we believe that the volume of key models downstream of the company is expected to fall, but the expense rate during the 2021H1 period is 6.44%, which is better than the same period last year. The combination of the two leads to a slight decline in the net interest rate. We believe that the volume increase and price drop is in line with the general market size, and the volume increase is several times (in the case of price reduction, there is still a 100% increase in revenue), while the price change is relatively limited, and the company's overall profitability is less affected and remains at a high level.
3) accelerate the expansion of production to cope with the high boom downstream; the cash flow is positive, and the business model has been improved.
The project under construction at the end of the period increased by 4.2 times compared with the beginning of the period. according to the annual report, the purchase of equipment increased, reflecting that the company is in the stage of accelerating production expansion, indicating that the current demand of downstream main engine factories is strong. At the end of the period, there was a net cash inflow of 36 million yuan from operating activities, compared with a net outflow of 53 million yuan in the same period last year, mainly due to revenue growth and increased rebates, which we believe may be due to the improvement of the business model of the industry.
As a strategic partner in the field of mechanical processing and heat meter processing in a mainframe factory under AVIC, the military aircraft business has directly benefited from the release of fighter aircraft in our country. According to the "World Air Forces 2020" data, compared with the United States, China's fighter planes have insufficient numbers and old disadvantages between generations, and there is a big gap with China's strategic air force goal of "taking the fourth-generation equipment as the backbone and the third-generation equipment as the main body." Under the guidance of the "strategic air force," China's fighter planes are in urgent need of equipment, so as to accelerate the replacement and installation of our aviation equipment, and the fourth-generation fighter planes will be in the stage of rapid climbing. AVIC clearly defines "strong core and great cooperation". The company is a strategic partner in the field of mechanical processing and heat meter processing in a mainframe factory under AVIC, and has repeatedly won the title of "excellent supplier" issued by aircraft manufacturing units under AVIC. Customer cooperation is stable and will significantly benefit from this process.
The domestic civil aircraft supporting market space is huge, and the international subcontracting business is expected to be further expanded. At present, the company mainly undertakes domestic civil aircraft supporting and international subcontract production business from the subordinate units of AVIC. China's aviation industry estimates that in the next 20 years, China's civil aviation market needs to replenish 7630 passenger aircraft worth more than US $1 trillion. According to the value of airframe parts accounting for about 30%, the foreseeable market size will exceed US $300 billion; at the same time, the international aviation subcontracting business continues to increase, with the A320 increasing significantly. In 2019, the company obtained the full-process production order of Safran landing gear related components in France, and began to undertake international business, and gradually developed direct business. We believe that the company's international subcontract business is expected to be further expanded. Although the civil aircraft business is affected by the epidemic in the short term, there is plenty of room for growth in the long run, and the proportion of the company's civil aircraft business is expected to continue to increase.
The income of special technology has been reflected, and the improvement of capacity utilization is expected to improve the overall efficiency of the company. The company is the only strategic partner in the field of machining and heat meter processing in a mainframe factory. In 2019, the company's special process lines such as non-destructive testing, anodizing, painting, chromium plating, cadmium plating, galvanizing and nickel plating were officially put into production. In 2020, the production capacity of each production line of the company's special process is gradually released, and the whole process capacity of aviation parts is connected. It is expected that with the improvement of capacity utilization, the contribution of special process performance will gradually increase.
Focus on assembly business capacity building, aviation parts full process capability advantage is highlighted. The company locates the whole process manufacturing of aviation parts, and the assembly of department components is the key development direction. The company is one of the four assembly units of a mainframe factory, and has carried out assembly business since 2018. In 2020, the company obtained the assembly qualification of the mainframe factory and the assembly order of the large parts of the fuselage of a certain type of UAV. And obtained the front fuselage, middle fuselage and rear fuselage assembly task. At present, the company has completed the assembly of large parts of the UAV, and the next step will continue to expand to have aircraft. With the development of China's aerospace industry and the gradual expansion of key models of major customers, the company's advantages in the whole process capability of aviation parts are highlighted, and the core benefits from the expansion of the market scale of the industry.
Increase the layout of intelligent manufacturing to promote both production capacity and industry. In order to meet the future market demand growth, the company actively laid out and increased production capacity. The 500 million yuan raised by the announcement in September 2020 has been completed recently. After deducting the issuance expenses, all the net funds raised will be used for the "Aviation parts Intelligent Manufacturing Center" and "Supplementary current Capital" projects. The project construction period is 42 months. After the project is completed and fully reached production, it is expected to achieve an annual income of 234 million yuan and a net profit of 60.02 million yuan. Taking into account the current strong downstream demand, this capacity expansion can ensure the company's high growth in the next few years.
Investment suggestion: the company has focused on aviation manufacturing for 17 years, has obvious advantages in precision manufacturing of aviation structural parts, and has the ability of full-process manufacturing of aviation parts. The company is a strategic partner in the field of mechanical processing and heat meter processing in a mainframe factory under AVIC, which has significantly benefited from the release of military aircraft. Taking into account the driving factors such as the existing income of special technology, the expected increase in assembly business and the increasing proportion of civil aircraft business such as international subcontracting and domestic civil aircraft in the future, the net profit is expected to be 2.43,3.57 and 489 million yuan from 2021 to 2023, corresponding to valuations of 54X, 37X and 27X, and maintain the "buy-A" rating.
Risk factors: the replacement of military aircraft is not up to expectations; civil aircraft business is not up to expectations; the production capacity of special process production lines is not up to expectations.