Events:

On August 27, the company released its semi-annual report for 2021, with revenue of 2.691 billion yuan, an increase of 21.35% over the same period last year, and a net profit of 57.7858 million yuan, an increase of 493.24% over the same period last year, deducting 11.0194 million yuan of non-return net profit, an increase of 25.21% over the same period last year.

Comments:

Revenue and profit increased significantly, model reserves and product orders were sufficient. On August 27, the company released its semi-annual report for 2021, with revenue of 2.691 billion yuan, an increase of 21.35% over the same period last year, and a net profit of 57.7858 million yuan, an increase of 493.24% over the same period last year, deducting 11.0194 million yuan of non-return net profit, an increase of 25.21% over the same period last year. During the reporting period, the company's operating income increased significantly, mainly due to efforts to overcome the impact of the epidemic, to promote scientific research and production, quality and quantity delivery of products. The higher growth rate of homed net profit is mainly due to the receipt of unemployment insurance return of 47.03 million yuan during the epidemic prevention and control period, which is unsustainable. The year-on-year growth rate of non-homed net profit is higher than that of revenue growth, mainly due to the improvement of 0.5pct to 2.17% during the period. In the case of continuous increase in R & D expenses compared with the same period last year, the company's management expenses and financial expenses have improved significantly. We believe that based on the fact that all the trainers and defense products of the company have been successfully delivered to users in accordance with the requirements of the contract in the first half of the year, the development of the model project has moved forward steadily, and the subsequent reserve of new models and product orders are sufficient, under the background of military training and preparation during the 14th five-year Plan, the company may continue to benefit.

According to the balance sheet, the company's contract liabilities reached 7.294 billion yuan at the end of the reporting period, the highest in history, reflecting the current company's full orders. The ending inventory increased by 33.44% compared with the beginning of the period, of which raw materials and products both increased by 56% and 25% compared with the beginning of the period, reflecting that the company is currently actively preparing production and is expected to gradually turn into revenue in the second half of the year.

According to the cash flow statement, the company had a net cash outflow of 9.74 million yuan from operating activities during the reporting period, which was significantly better than that of 522 million yuan in the same period last year, mainly due to the increase in cash received by the company in selling goods and providing services during the reporting period. with the improvement of downstream demand, the company's cash flow continues to improve.

Coach equipment system and protection business two-wheel drive, is expected to further expand the international market. The coach equipment system is the material basis for carrying flight training and the production line for the incubation of aviation equipment capabilities. It is a "flight teaching equipment system" composed of different levels of trainers, ground training simulators and other training elements. Scientific and reasonable trainer equipment system plays a vital role in improving the training quality of pilots, shortening the training cycle, reducing training costs, improving training efficiency and ensuring training safety. The company is the main R & D and production base of trainers in China, mainly engaged in the design, development, production, sales, maintenance and service guarantee of a series of trainers. At present, the main products are CJ6 primary trainer, K8 basic trainer and L15 advanced trainer, with a total production of thousands, which is the only enterprise in China that can develop primary, intermediate and advanced trainer and provide service guarantee, and is the main base for the development and guarantee of trainer in our country. China has formed a series of international star trainer equipment, and Chujiao-6, Kmuri 8, Lmur15 and other aircraft have been exported to more than 10 countries, especially Kmuri 8 aircraft have set up overseas production lines. With the improvement of China's international status and influence, in the case of an excellent trainer equipment system that meets the domestic training needs, it is expected to further promote our coaching equipment to the international market. In 2019, the company conducted an asset exchange with Hongdu Company, and the company acquired the manufacturing business of spare parts of aviation products (including large aircraft) and put it into Hongdu's defense product R & D and manufacturing business. The company's main business has expanded from a single trainer to coach-level and defense products. After the completion of the asset exchange, the company has expanded the business of defense products and improved the development of aviation products and the guarantee capability of the system in an all-round way. We believe that, as an important supporting platform for military aircraft, the coaching equipment system may benefit from the release of equipment, and in the context of military training and preparation, the company's defense business may benefit from the core and form a two-wheel drive model.

Transfer 50% of the shares of International Mechatronics and continue to focus on the main business. During the reporting period, in order to optimize the allocation of resources and focus on the main business, the company transferred its 50% stake in Jiangxi Hongdu International Mechanical and Electrical Co., Ltd. (hereinafter referred to as "International Mechatronics"). After the transfer is completed, the company's international mechanical and electrical equity is reduced to 35%, and international mechanical and electrical will no longer be included in the company's consolidated financial statements. After the completion of the equity transfer, the company will further focus on the coaching equipment system and defense business, providing a strong guarantee for the long-term development of the company's "14th five-year Plan".

Investment suggestion: as the leading platform of domestic coaching equipment system, the company integrates machine design, manufacturing, final assembly integration, flight test, sales and service, and actively expand aircraft maintenance and support business, as well as defense business. or will continue to benefit from the volume of equipment and defense product demand growth. We estimate that the company's net profit from 2021 to 2023 will be 2.3,3.7 and 580 million yuan respectively, and the price-to-earnings ratio of the previous share price will be 132,81,53 times, respectively. For the first time, the company will be given a buy-A rating.

Risk hint: the volume of trainer business is not as expected, and the demand of defense business is not as expected.