What happened: the company released its quarterly report of 2022 on October 27th. The revenue in the first three quarters was 690 million yuan, and the net profit of YoY+14.9%; was 10 million yuan, compared with 680 million yuan in the same period last year. The net profit was 30 million yuan, YoY+9.3%. The three quarterly reports are in line with market expectations, and investment income / equity incentives affect apparent profits.

Revenue in the third quarter increased by 10% compared with the same period last year; investment income / equity incentive fees affect apparent profits. In a single quarter, the company: 1) 1Q22~3Q22 realized revenue of 220 million yuan (YoY+20.2%), 240 million yuan (YoY+15.0%) and 230 million yuan (YoY+10.3%) respectively; 1Q22~3Q22 realized net profit of 20.89 million yuan (YoY+132.8%), 5.96 million yuan (670 million yuan in the same period last year) and-12.41 million yuan (- 3.55 million yuan in the same period last year). 2) the gross profit margin of 3Q22 is 41.1%, an increase of 4.4 ppt over the same period last year; the gross profit margin of the first three quarters is 44.5%, an increase of 4.6ppt over the same period last year. In the first three quarters of 2022, the investment income was-10 million yuan. In the same period last year, Huaxin Technology, a subsidiary, introduced investors and generated an investment income of 790 million yuan. At the same time, equity incentive fees increased by 27.66 million yuan compared with the same period last year, which jointly affected the company's apparent profits.

Deep ploughing aviation supporting main industry, layout compound semiconductor chip manufacturing field. Company: 1) Aeronautical equipment development plate covers the development and guarantee of aero-engine main parts, D-class full-motion flight simulator, cabin oxygen supply system, aviation equipment automatic control system, mechatronics system, pilot oxygen supply system and so on. It is a leading provider of high-end products in China. 2) Aviation engineering technology and services, including aircraft overhaul, aircraft disassembly, aircraft painting, business aircraft operation, maintenance of accessories of the Ministry of Aviation, aviation training, etc., is the largest private aircraft MRO enterprise in China, as well as the largest third-party pilot and flight attendant training center in China. 3) Huaxin Technology is engaged in the design and manufacture of high-performance second / third generation integrated circuits, and has built the first 6-inch compound semiconductor production line in China, which fills the gap in China.

Continue to increase investment in research and development; prepaid accounts reflect the strong demand downstream. During the first three quarters of the company, the expense rate was 35.6%, an increase of 0.3ppt over the same period last year. Specifically, 1) the sales expense rate was 1.6%, which decreased by 0.1 ppt. 2) the management expense rate was 19.5%, an increase of 0.2ppt over the same period last year, mainly due to an increase of 27.66 million yuan in equity incentive fees compared with the same period last year. 3) the R & D expenditure rate was 6.8%, an increase of 1.7ppt over the same period last year, and R & D expenditure was 50 million yuan, an increase of 54.5% over the same period last year, mainly due to the new R & D investment in the current period; 4) the financial expenditure rate was 7.7%, a decrease of 3.4% over the same period last year.

By the end of the third quarter, the company: 1) accounts receivable and bills 660 million yuan, an increase of 10% over the beginning of the year; 2) inventory of 340 million yuan, basically the same as at the beginning of the year; 3) 40 million yuan in advance, an increase of 159.7% over the beginning of the year. 4) the net cash flow of operating activities is 270 million yuan, which is basically the same as the same period last year.

Investment suggestion: the company is the largest private enterprise in China for aircraft overhaul, maintenance of accessories of the Ministry of Aviation, and conversion of aircraft to cargo aircraft, focusing on core equipment, aviation engineering and technical services and aviation training business, and the steady development of the core main industry. Flight simulator and other research and development achievements are remarkable. We maintain the profit forecast of 72 million yuan, 100 million yuan and 141 million yuan in net profit for 2022 to 2024, and the current stock price corresponds to 97x/69x/49x for PE in 2022 to 2024. We maintain a "cautious recommendation" rating, taking into account the steady progress of the company's product development and the high level of downstream applications in compound semiconductors.

Risk tips: downstream demand is lower than expected; product research and development progress is not as expected.