Incident: The company released a report for the third quarter of 2017. From January to September 2017, the company achieved operating income of 1,318 million yuan, a year-on-year decrease of 14.75%; net profit attributable to shareholders of listed companies was 23 million yuan, a decrease of 42.96% over the previous year; basic earnings per share were 0.07 yuan, a decrease of 41.67% over the previous year. The main reason for the decline in the company's performance was the decline in revenue and profit from its main business due to a decrease in market demand, the subsidiary China Aviation Development and Harbin Axis.
Structural adjustment is painful, and transformation and upgrading are beneficial to the long term. The company is currently in a transition period of structural adjustment, transformation and upgrading. In order to further consolidate and enhance the company's advantages in the field of aero engine parts, the company optimizes and upgrades the product structure, retains existing high value-added products, and at the same time actively develops new high-value-added products, abandons some low-value-added or loss-loss products, achieves “business focus, resource focus, energy focus”, and strives to become an outstanding supplier of aero engine parts in the world. We believe that the decline in the company's performance in the third quarter is a normal phenomenon during the painful period of structural adjustment. In the long run, the transformation and upgrading surrounding the main aero engine business will be a strong guarantee for the company's continued growth in future performance.
The market demand space is huge, and the two machines are specially designed to help growth. At present, China's military and civilian aero engines are still highly dependent on imports, and the technological gap between domestic engines has become a key bottleneck that is difficult to break through in the development of air force equipment. The strategic requirement of “integrating air and space, combining attack and defense” has made the accelerated upgrading of air force equipment an inevitable trend. This will bring huge market demand for aircraft engines. It is worth noting that the J-20 and Yun-20, the main models of China's air force equipment in the future, are expected to be replaced with the “Heart of China” and replaced by imports. According to international airline forecasts, the global civil aviation engine market will reach an average of about 85 billion US dollars per year in the next 20 years, and there is huge room for demand in the foreign trade export market. As a listing platform for the parts sector of China Aero Engine Group, the company will be a direct beneficiary of the implementation of major technology projects for aero engines and gas turbines. The prospects for future development are very broad.
Profit forecast and investment rating: We expect the company's net profit to the parent in 2017-2019 to be about 45 million yuan, 70 million yuan, 96 million yuan, EPS of 0.14 yuan, 0.21 yuan, 0.29 yuan, and corresponding PE 190 times, 123 times, and 90 times, giving a “increase in holdings” rating.
