Events:

On the evening of August 30, 2021, the company released its semi-annual report of 2021, with revenue of 482 million yuan, an increase of 36.3% over the same period last year, and a net profit of 128 million yuan, an increase of 22% over the same period last year. The non-return net profit was 113 million yuan, an increase of 29.44% over the same period last year, and the final contract liability increased by 1078% over the beginning of the period.

Comments:

1) Revenue side: benefiting from the expansion of aviation business volume and refrigeration business market, 21H1 revenue is growing rapidly.

21H1 achieved revenue of 482 million yuan, an increase of 36.3% over the same period last year, in line with expectations, mainly due to good growth in the two main businesses of the company in the first half of the year. Among them, the revenue of the aviation business reached 297 million yuan, an increase of 36.28% over the same period last year, accounting for 61.53% of the revenue. The revenue accounted for a further increase compared with the 20-year report. The company's aviation products are equipped with all the military aircraft in research and in service, as well as some civil aircraft. The current aviation equipment is accelerated to be reinstalled, the double improvement of the company's enjoyment and supporting value, and the certainty of future growth is high. The revenue of the special refrigeration business reached 126 million yuan, an increase of 53.5% over the same period last year, accounting for 26% of the revenue. It is mainly due to the "14th five-year Plan" research and pre-research projects of the special refrigeration business tracking mainframe factory, ramming the foundation, strengthening the management, promoting the strengths, and making up for the shortcomings. To strengthen the market for temperature regulation equipment of naval warships, taking into account the broader market for special refrigeration, it is expected to have higher performance flexibility. In addition, in the first half of the year, the company also actively promoted the life cycle service guarantee of aviation equipment, developed the market of high value-added products in the engine field, undertaken the rail transit oxygen machine project, independently developed oxygen equipment testers, and tapped the maintenance business market. In the first half of the year, the revenue of the maintenance business reached 60 million yuan, an increase of 10.47% over the same period last year.

2) profit side: during the period of the increase of gross profit margin, the expense rate decreased, and the company's profitability improved; R & D investment continued to increase to help the company's future development. The company's gross profit margin is 48.24%, which continues to increase 2.16pct compared with the same period last year, which is the increase in the proportion of the company's aviation business with higher gross profit margin and the increase in the gross profit margin of the company's various businesses. Among them, the gross profit margin of aviation products is 47.58%, which is higher than that in 2020, or on the one hand, with the acceleration of the installation of new models, the value of the company's new models is higher, so the gross profit margin is higher; secondly, with the increase of the delivery scale of the company, the sharing of equipment and labor costs may decrease; the gross profit margin of refrigeration business is 39.48%, which is higher than that of 2020, or the company's customer development is smooth, and the scale effect is reflected. During the reporting period, the expense rate was 19.54%, a decrease of 4.14pct compared with the same period last year, of which the sales expense rate slightly increased 0.024pct, mainly due to the increase in after-sales service fees and the salary of sales staff with the increase of income. The rate of management expenses slightly improved 0.05pct, the increase of management expenses was mainly due to the increase of travel and business hospitality expenses, the increase of managers' salary, and there was no social security waiver in the current period, but the growth rate of management expenses was lower than that of revenue growth; the improvement of 0.843pct of financial expenses rate was mainly due to the increase of interest income in the current period, or related to the increase in contract liabilities and better payback. The R & D expenditure rate increased 0.731pct compared with the same period last year, mainly due to the increase in research and development tasks; during the reporting period, according to the progress of the project, contract payments for scientific research procurement increased, scientific research access and delivery products increased; the number of R & D personnel and salary levels increased compared with the same period last year.

Compared with the previous period, management expenses and asset impairment losses increased, government subsidies and social security relief decreased compared with the previous period, and the profit end was slightly lower than that of the previous period. The growth rate of the net interest rate of the current period is lower than that of revenue, mainly due to the good increase in inventory at the end of the period, and the impairment loss of assets in the current period is 12.4 million yuan, an increase of 15.7 million yuan over the same period last year; secondly, the subsidies in other income in the current period are 5.09 million yuan less than that in the same period last year; in addition, there are social security waivers for the epidemic in the same period last year, which led to an increase in management costs. If the above effects are added back, the growth rate of net profit is higher than that of revenue.

3) the epidemic led to a high base of Q2 last year, and revenue and profits continued to grow and hit record highs in a single quarter. In a single quarter, Q2 achieved revenue of 263 million yuan and net profit of 79 million yuan in 2020, accounting for about 40% of the annual performance. This is mainly due to the low delivery of Q1 caused by the epidemic last year and the high base caused by the centralized delivery of Q2. 21Q2 achieved revenue of 294 million yuan and net profit of 84 million yuan, which still increased compared with the same period last year, and both revenue and profit reached quarterly highs. We think that the second quarter of this year is a normal quarter, considering that the growth rate of related party transactions released by the company in the previous period is 50%. We believe that with the continued growth of the company in the second half of the year, the full-year results can be expected.

4) the contract liability has greatly increased by 1078%, and the certainty of the leading growth in the segment of aviation airborne equipment is high. The contract liability at the end of the period increased by 1078% compared with the beginning of the period, mainly due to the increase in the amount of contract received in advance. As the leader of aviation airborne subdivision, the company benefits both volume and price, and has high certainty in the future. The prepaid account at the end of the period increased by 71% over the beginning of the period, while the company's inventory increased by 39% compared with the beginning, of which raw materials increased by 54%, inventory increased by 47%, and issued goods increased by 40%. We believe that the current orders are full, and multiple indicators of the balance sheet reflect that they are in a state of stepping up procurement and production.

The superimposed payback of the advance payment is better, and the cash flow is greatly improved. The net cash inflow from operating activities was 229 million yuan, compared with a net outflow of 19 million yuan in the same period last year, mainly due to an increase in advance payments and sales rebates during the reporting period, while accounts receivable and short-term loans decreased at the end of the reporting period, and the company's cash flow improved significantly. It is expected that the financial expense rate will continue to improve.

Aviation airborne equipment has a prominent position in the field of subdivision, and the replacement and installation of military aircraft has been accelerated. The company's aviation products support all military aircraft in research and service, as well as some civil aircraft, and there is a lot of room for improvement in the number and structure of China's military aircraft. It is estimated that the new market space for military aircraft will reach 650 billion yuan during the 14th five-year Plan period (it is estimated to refer to the previous report "[Anxin military Industry] Annual Investment Strategy"). (1) the only aviation oxygen system in China, the inerting protection base of airborne fuel tank, and the largest manufacturer of auxiliary fuel tank in China, benefiting from the acceleration of military aircraft replacement; (2) with the intergenerational improvement of military aircraft, a new fuel tank inerting system has been added, and the value of other systems has also been improved, and the matching is expected to show a trend of simultaneous increase in quantity and price. (3) the maintenance market is also broad, and the company's expansion of the maintenance market of related products is expected to become a new growth point for the company's future development; (4) based on the advantages in the military field, it is expected to expand a broader civil aviation market in the future. Based on the above logic and with reference to the company announcement, it is estimated that the volume of transactions related to the sales of goods sold by the Aviation Industry Group will grow by 50% in 21 years, we believe that the company's aviation products will continue to grow faster than the aviation equipment industry.

The domestic leading manufacturer of special refrigeration equipment has a broader market for military and civilian use. In the military field, the company has obvious advantages in core technology and complete series spectrum, and its products mainly include square cabin air conditioning, armored air conditioning, ship air conditioning, cold liquid equipment and other products, realizing the coverage of the whole army of the Air, Army, Navy and Rocket Army. With the increase of penetration in the military field and the growth of the company's market share, the refrigeration field is expected to contribute higher performance flexibility. In addition, the company develops civil special refrigeration equipment through the transformation of military technical achievements, and the market is even broader.

The reform has achieved remarkable results, and the shareholding of the core management ensures long-term development. The profit growth rate of the company from 2016 to 2020 is significantly higher than that of revenue (the revenue is 7.7x6.8 and 830 million respectively, and the net profit is-0.10.6 and 0.70 respectively). The net interest rate shows a trend of increasing year by year (the net interest rate increases by 25pct from 2016 to 2020), which is a drastic reform in the early stage of the company. Implement a number of measures, such as streamlining personnel and withdrawing from non-core main businesses, increase the gross profit margin of the company, increase the 15pct overlay expense rate and improve 9.4pct (among which the R & D expenditure rate increases 3.4pct). Secondly, the company introduced war investment in 2018 and implemented employee stock ownership, which is owned by core management. According to the pre-term stock sale listing and circulation announcement, the major shareholders of the company have agreed to undertake not to transfer the company's shares for 60 months from 2018.6 in accordance with the Capital increase Agreement, with a long lock-up period superimposed by core management and sufficient motivation for performance release.

Investment advice: taking into account the high prosperity of aviation equipment, the higher growth rate of the company's aviation products than the industry, the greater performance flexibility contributed by the refrigeration business, and the remarkable results of the company's previous reforms, we expect the company's 2021-2023 net profit to be 2.75,4.08 and 584 million yuan, respectively, corresponding to PE of 49x, 33x and 23x, continue to recommend and maintain "Buy-A".

Risk hint: the progress of military aircraft replacement is not as expected, the competition pattern in the refrigeration field is deteriorating, and civil aviation orders and domestic substitutions are not up to expectations.