Main points of investment

The company's performance slightly exceeded expectations: in the first half of 2021, the company achieved operating income of 27.893 billion yuan, an increase of 33.06% over the same period last year, and a net profit of 1.199 billion yuan, an increase of 39.74% over the same period last year, slightly exceeding expectations.

The company's segment business is improving: the aviation complete machine business, with an operating income of 9.755 billion yuan, an increase of 20.05% over the same period last year, and a segment profit of 729 million yuan, an increase of 42.38% over the same period last year. This is mainly due to the rapid growth of helicopter aircraft and advanced trainers and the increase of gross profit brought about by scale effect. Aviation supporting systems and related businesses achieved business income of 14.515 billion yuan, an increase of 52.04% over the same period last year, and segment profits of 2.479 billion yuan, an increase of 59.52% over the same period last year, thanks to the high prosperity of the military electronics industry. The business of the aviation engineering service sector achieved an operating income of 3.623 billion yuan, an increase of 20.09% over the same period last year, and a segment profit of 157 million yuan, an increase of 72.53% over the same period last year.

During the period, the cost was stable, and the R & D investment continued to increase: during the company period, the expense rate was stable, the sales expense rate was 1.13%, a slight increase of 0.04% over the same period last year, and the management expense rate was 5.3%, a decrease of 0.92% over the same period last year. The rate of R & D expenditure was 4.83%, an increase of 0.38% over the same period last year, indicating the trend of increasing R & D by subsidiaries of the group.

The national defense and military industry is in a high boom: the leading party group of the aviation industry held an economic operation conference in the first half of 2021, and the aviation industry achieved "more than half of the time and more than half of the income" for the first half of the year, of which the military business achieved "more than half of the time and more than half of delivery" for the first time, and the benefit index not only far exceeded the progress of sequence, but also significantly ahead of the growth rate of income, and the balanced level of profitability and profit creation was further improved. AVIC achieved more than half of the double for the first time, reflecting the high prosperity of the industry and the particularity of this round of military boom-the high prosperity of the industry has been reflected in the company's performance.

In the medium to long term, the fundamentals of the military industry continue to improve: in our annual strategy report, we demonstrated the inevitability of the military industry boom from the perspective of the evolution of military strategy. The evolution of the world military trend has brought about changes in China's naval strategy, thus promoting the sustained high prosperity of naval equipment. The general trend of the world military requires information-based and platform operations, and the demand for missiles is growing explosively. The reasonable structure of military power has brought about a large amount of compensated investment by our air force, especially the military aircraft industry chain ushered in a high boom. Military-civilian integration under the military-civilian relationship is a national strategy, which provides an once-in-a-lifetime strategic opportunity for high-quality private enterprises.

AVIC represents the high-quality assets of the aviation industry chain: 1) the whole aircraft are mainly helicopters and trainers. The helicopter has shown a pedigree development, forming a good pattern of "one machine, multi-type, series development". 2) Aeronautical accessories are mainly avionics system and high-end connectors. The company is the only target of aviation companies listed in Hong Kong shares, and it is scarce.

Combined with the prosperity of the national defense industry and the company as the most important platform company in AVIC, it will fully benefit from the development of the industry and group companies.

Investment suggestion: the revenue of the maintenance company from 2021 to 2023 is 606.35 yuan, 718.53 yuan and 84.993 billion yuan, and the net profit is 24.45,29.50 and 3.436 billion yuan respectively, and the corresponding EPS is 0.32,0.38,0.45 yuan. Maintain the "buy-A" rating.

Risk tips: 1, the risk of market development of civilian products. As there are many competitors in the civilian products market, and there are some differences between the business model and the military industry, there is a risk of market development. 2. the risk of new product research and development. The company is a high-tech enterprise with high technology content, and its subsidiaries are working on a large number of products, and there is a risk that the progress of research and development is lower than expected and the time to market of new products is lower than expected. 3. Secondary market risk. Although the company is a sound high-tech leading enterprise, but β is larger, the fluctuation of the secondary market will bring certain risks.