Event: the company announced that in the first three quarters of 2018, the company realized operating income of 1.506 billion yuan, an increase of 43.26% over the same period last year, and a net profit of 325 million yuan, an increase of 26.58% over the same period last year, corresponding to 0.22 yuan per share.

Comments: the active expansion of aerospace business and the recovery of agricultural machinery industry jointly promote the company's rapid revenue growth, the growth of operating costs is a drag on the company's performance, and the cash flow situation is expected to be further improved. (1) during the reporting period, the company achieved operating income of 1.506 billion yuan, an increase of 43.26% over the same period last year, maintaining rapid growth for three consecutive years. The main reason is: during the ① reporting period, the company's operating performance in the main business areas of the aerospace sector grew steadily, focusing on strengthening customer management in the global market and promoting the scale of the company's business development. ② agricultural machinery plate is affected by the slow recovery of the industry, agricultural machinery sales business continues to improve, sales revenue increased compared with the same period last year. (2) during the reporting period, the company's return net profit was 325 million yuan, an increase of 26.58% over the same period last year, which was lower than the income growth rate, mainly due to the following reasons: the operating cost of ① rose sharply, resulting in a 9.09% decrease in gross profit margin compared with the same period last year; ② financial expenses increased by 51 million yuan over the same period last year, mainly due to the substantial increase in short-term borrowing and the increase in interest payment expenses during the reporting period (3) the net cash flow generated by the company's operating activities is-164 million yuan (2018Q2) and 155 million yuan (2018Q3). The liquidity situation of Q3 is significantly better than that of Q2. Considering that the company's payback is generally concentrated in the fourth quarter, the company's subsequent cash flow is expected to further improve.

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 a new generation of important components such as compressors, fans and turbine casings in the aviation propulsion system with large culvert ratio. 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 advice: 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 0.39max 0.54 plus 0.67 yuan per share, and the corresponding PE will be double that of 14-10-8, giving it a "recommended" rating.

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