Event: the company released its 2018 semi-annual report on August 15, 2018. In the first half of the year, the company achieved operating income of 771 million, an increase of 58.09% over the same period last year, and a net profit of 188 million, an increase of 106.15% over the same period last year, corresponding to 0.13 yuan per share.

Comments: aerospace business expansion, optimization of company operation management and agricultural machinery asset disposal promote the company's revenue performance to grow significantly. In the first half of 2018, the company achieved business income of 771 million yuan, an increase of 58.09% over the same period last year, mainly benefiting from: the cooperation with AVIC and AVIC expanded from single-piece production to the delivery of most sections, and gradually expanded its market share; actively participate in the R & D and batch production of new projects of scientific research institutes in aerospace and shipbuilding fields, and expand the rail transit market. The company's homing net profit in the first half of 2018 increased by 106.15% compared with the same period last year, mainly driven by the following factors: (1) due to the rapid development of the aerospace industry and national policies, the company's orders increased and its operating income increased significantly; (2) the company optimized its management and improved its operating efficiency, with an expense rate of 17.71%, which was 9.24% lower than the average for the same period in the past three years. (3) the income from the disposal of the company's assets during the reporting period was 98 million yuan.

The supporting leader of aerospace civilian participation in the army has benefited from the rapid development of China's aerospace field. The company is a Class A supplier to China's eight aircraft mainframe factories, four aero-engine factories, eight aerospace mainframe factories and four aerospace engine factories, and has formed a strategic partnership with seven mainframe factories. its industry coverage, product variety coverage, key parts coverage, important parts coverage, delivery quantity, delivery output value and so on are in the leading position among domestic private supporting enterprises. According to the company's announcement, under the background of a steady increase of 8.1 percent in military expenditure, aerospace equipment, as the focus of our army's current equipment construction, will have a compound growth rate of more than 20 percent during the 13th five-year Plan period; in the next 20 years, China's demand for military aircraft, including fighters and transport aircraft, is about 2900, and the market size of military aircraft is about 1.4 trillion yuan, with an average annual market space of about 70 billion yuan. As a private aircraft parts manufacturing enterprise with the largest scale of high-end manufacturing equipment, the most professional and the largest variety of products in the aerospace field, the continuous batch production of new models and the mass production of existing models in the future will directly drive the growth of the company's business scale.

International subcontract business and domestic civil aviation parts manufacturing business are expected to become a new profit growth point for the company. In terms of international subcontract business, the company actively carries out international business cooperation with international well-known aviation companies such as Airbus, Boeing Co, Bombardier, Israel Airlines, GE, CFM, Pratt & Whitney and Roro, as well as its first-tier suppliers, and has signed a "long-term Agreement on the supply of Aviation products" with Safran. According to the company announcement, the subcontract business of China's civil aviation parts has reached 10 billion yuan, and there is a huge demand for aircraft procurement in China's civil aviation in the future. The capacity cooperation mode of civil aviation procurement will promote the further transfer of aviation international subcontract orders to China. The company is expected to continue to benefit from the growing aviation international professional business under the international trade compensation agreement, and gradually create a new profit growth point. In terms of domestic civil aviation parts manufacturing business, the company participates in the preliminary research and development of Comac C929 and COMAC CJ-2000, and most of the assembly lines in its construction can undertake the manufacture of some aircraft parts, such as the flat tail, vertical tail and fuselage tail segments of C929 large wide-body aircraft. According to the prospective Industrial Research Institute, the total industrial output value of China's civil aviation aircraft parts manufacturing industry will reach 26.9 billion yuan in 2022, and the company's civil aviation parts manufacturing business is expected to continue to benefit from the rapid growth of the aviation parts market.

Privately raised 1.5 billion yuan to assist in production research, the company's future development is expected. The company plans to raise 1.5 billion yuan in private shares to invest in aerospace assembly plant project (435 million), aerospace special process production line project (300 million) and green power aviation propulsion system casing intelligent manufacturing center (765 million). The aerospace assembly plant project will add assembly robots, assembly pulsating production lines, etc., the construction period is 3 years, and the after-tax internal rate of return of the project is 17.08%. After the completion of the aerospace special process production line project, the new surface treatment production line can form surface treatment capabilities, including fluorescent flaw detection, anodizing, chemical milling and other surface treatment capabilities, the construction period is 3 years, and the after-tax internal rate of return of the project is 18.82%. The intelligent manufacturing center of the casing of the green power aviation propulsion system will produce important components such as compressors, fans and turbine casings in the new generation of large culvert ratio aviation propulsion systems. The construction period is 15 months, and the after-tax internal rate of return of the project is 19.05%. After the completion of the three projects, the company's industrial chain will be more perfect, technical strength and profitability will be further strengthened, and the status of the industry will be enhanced. Optimistic about the growth of the company's profitability, the company's future development can be expected.

Profit forecast and investment suggestion

The company's performance in the military and civil aerospace fields continues to grow, and the further implementation of international subcontract orders is expected to provide a new driving force for the company's profits. Optimistic about the future development of the company, it is predicted that the annual EPS of the company in 2018-19-20 will be 0.41 to 0.59 plus 0.74 yuan per share, and the corresponding PE will be times that of 19-13-10, giving it a "recommended" rating.

Risk hint: the mass production of equipment is not up to expectations; the international subcontracting business is not as expected.