Key points of investment

Incident: On April 28, 2023, Hondo Air released the 2023 Quarterly Report.

The company achieved revenue of 137 million yuan, a year-on-year decrease of 81.06%; net profit of Fumo -0.09 million, a year-on-year decrease of 29.8.09%; net profit after deducting non-homo revenue of -14 million, a year-on-year decrease of 443.62%. EPS was -0.01 yuan, and the weighted average return on net assets was -0.17%, a year-on-year decrease of 0.26 pct. The overall performance side was under pressure, and profits fell short of expectations, mainly due to the decline in the company's product delivery volume.

The decline in product delivery led to a decline in revenue, and profitability was under pressure 1) Profit margin: The gross profit margin of the 2023Q1 company's sales was 3.19%, an increase of 0.02 pct over the previous year; the net profit margin was -6.62%, a decrease of 7.31 pct from the previous year. The reason for the decline in net interest rate was mainly due to the increase in the company's expenses rate during the company period.

2) Period expenses: The cost rate for the 2023Q1 period was 13.8%, an increase of 11.06 pct over the previous year. Among them, the sales expense ratio was 1.48%, an increase of 1.25 pct over the previous year; the management expense ratio was 7.09%, an increase of 5.48 pct over the previous year; the R&D expense ratio was 6.34%, an increase of 5.12 pct over the previous year; and the financial expense ratio was -1.09%, a decrease of 0.79 pct over the previous year. The high cost rate for the period was mainly due to a sharp decline in sales revenue on the denominator side.

The balance side shows that the company's orders are still abundant, and the company's performance is expected to recover 1) The balance side: as of 2023Q1, the company's inventory was 4.131 billion yuan, up 19.53% from the end of '22; the company's contract debt was 5,518 billion, down 0.05% from the end of '22; and prepaid accounts were 5.151 billion, a decrease of 2.83% from the end of '22.

2) Cash flow: The net cash flow from the company's operating activities in Q1 2023 was -428 million yuan, a year-on-year decrease of 19.88%.

Currently, the smallest market capitalization aircraft OEMs are driven by “domestic demand+foreign trade” for coacher+defense products 1) Coach aircraft: The company is the only domestic enterprise that also has the ability to develop, develop, and manufacture a full range of junior, middle and advanced trainer aircraft products. It is driven by “domestic demand+foreign trade”.

2) Defense products: Relying on the aviation industry's Air-to-Surface Missile Research Institute, revenue growth may surpass other aircraft OEMs in the future. Combined with increased profit margins, performance flexibility is high.

Profit Forecast and Valuation:

The company's trainers and defense products are driven by “domestic demand+foreign trade”. In 2023-2025, the company's net profit is expected to be 1.9, 220, and 290 million yuan, compared with +32%, +20%, +29%, EPS of 0.26, 0.31, 0.40 yuan, and PE 98, 81, 63 times, maintaining the “buy” rating.

Risk warning: Product delivery plans are delayed; risks such as engine supply shortages.