Event: the company announced on April 28 that its 2019 operating income was 1.495 billion yuan (+ 98.07%), its net profit was 67.6786 million yuan (+ 34.54%), its gross profit margin was 24.27% (- 8.33pcts), and its net profit rate was 4.43% (- 2.14pcts). It was announced on April 29 that Q1 had an operating income of 294 million yuan (+ 25.81%) in 2020 and a net profit of 168200 yuan (- 44.12%).
Main points of investment:
The company's performance is growing strongly, the acquisition synergy effect is beginning to show, and the market layout at home and abroad takes a two-pronged approach: the company's operating income in 2019 increased by 98.07% compared with the same period last year, and the net profit belonging to shareholders of listed companies increased by 34.54%.
The profit growth is mainly due to the gradual landing of new customer orders in the equipment development and assurance business and the smooth delivery of new models; synergy between the acquired Estonian Magnetic (MMRO) and the company's existing aviation maintenance business; and good sales rebates.
During the reporting period, the company's gross profit margin decreased 8.33pcts, including equipment development and support business gross profit margin fell 5.5pcts, aviation maintenance and services declined 8.89pcts, mainly due to increasingly fierce competition in the domestic market. The company's development expenditure increased by 39.62% over the same period last year, mainly due to the development expenditure of supporting products for new models; the financial expenses increased by 497.11% compared with the same period last year, mainly due to the increase in loan interest and the decrease in exchange earnings; the net cash flow generated by operating activities increased by 590.83% over the same period, mainly due to the increase in sales rebates. Due to the large book value of goodwill acquired by MMRO and DMH, the company calculated a loss of 8.5231 million yuan in goodwill impairment.
The company ploughed deep into overseas markets, accounting for 58.31% of overseas revenue, an increase of 115.7% over the same period last year. In April 2020, the company plans to increase the capital of Hong Kong Airlines by no more than US $50 million in monetary terms, which will enhance the financial strength of Hong Kong Airlines and its competitiveness to participate in air asset management business, and the scale of overseas business is expected to be further expanded. Domestically, revenue in Northeast China increased by 421.17% over the same period last year, 425.26% in Southwest China, 392.03% in Northwest China, and 252.41% in Central China. Business scope and scale continued to expand.
On November 4, 2019, the company completed the 2019 stock option incentive plan, granting 43 subjects 2.87 million stock options (accounting for 1.2% of the company's total share capital at the time of the announcement of the incentive plan) at an exercise price of 18.02 yuan per share. the recipients include directors and senior managers and core technical (business) personnel.
During the reporting period, the company was mainly engaged in equipment development and support, aviation maintenance and service two major modules, equipment development and support revenue accounted for 21.94%, aviation maintenance and service accounted for 77.51%.
① equipment development and support: the company's equipment development and support section covers airborne equipment development, testing equipment development, aircraft refitting business, mainly based on the needs of the main domestic aircraft assembly units. During the reporting period, the revenue of the equipment development and guarantee sector was 328 million yuan, an increase of 113.08% over the same period last year, with a gross profit margin of 40.36%. With the gradual landing of new customer orders and the smooth delivery of new models, it has a positive impact on the company's net profit during the reporting period.
② aviation maintenance and service: the company has more than 20 years of experience in the field of aircraft maintenance, has CAAC (China), FAA (USA), EASA (Europe) airworthiness system certification, and has a high market share in private independent third-party maintenance enterprises. During the reporting period, the revenue of the aviation maintenance and service sector was 1.158 billion yuan, an increase of 96.57% over the same period last year, and the gross profit margin was 19.18%. MMRO, which the company acquired in 2018, has produced synergy at home and abroad to improve the company's performance in terms of operation.
During the reporting period, the net profit of MMRO Company was 21.9866 million yuan, while that of the newly acquired Sun Company, DMH Company, was minus 1.957 million yuan. Some subsidiaries had not yet formed a scale of new business and did not make a profit during the reporting period. Affected by the global grounding of Boeing Co 737MAX aircraft in 2019, the actual growth rate of passenger aircraft in the industry was less than 3 per cent for the whole year. During the reporting period, most of the 737MAX aircraft were under commercial insurance, which did not have a negative impact on the company's maintenance business.
Q1 revenue in 2020 increased by 25.81% compared with the same period last year, mainly due to the completion and delivery of new customer orders in equipment development and guarantee business, and the smooth progress of overseas air asset management business. During the epidemic, although the demand for maintenance and services of the Aviation Department decreased, the increase in "passenger-to-cargo" made up for the volume of maintenance business to some extent. Equipment development and support business is mainly for the final assembly unit, and the project implementation cycle is long, so it is judged that it is relatively less affected by the epidemic at present.
Focus on the aviation industry, by broadening the subdivision of business areas to locate integrated support service providers: the company is based on equipment development and maintenance support, focusing on professional services in various segments of the aviation industry. Airborne equipment is mainly assembled in various types of domestic aircraft and helicopters, including flight parameters and voice recording system, integrated data acquisition and information processing system, helicopter vibration monitoring and health diagnosis system, engine health monitoring system, etc. The test products include automatic test system / equipment, portable maintenance and testing equipment, aviation radio integrated detector, etc., covering more than 20 main models, more than 2000 items of airborne equipment and ships; the refitting business mainly depends on the assembly of the company's airborne equipment, but also undertakes other refitting tasks of customers.
Looking to the future, equipment development and support are still based on the needs of the main domestic aircraft assembly units, focusing on helicopter construction safety and integrated support system, while expanding in the direction of fixed wings; aviation maintenance and services have accelerated the expansion from parts maintenance and support to base maintenance, route maintenance, interior modification, whole machine spraying and other fields. With the increasing number of aircraft fleets in the Asia-Pacific region and the rise of low-cost airlines, there is a growing demand for maintenance services, second-hand aircraft materials and aircraft disassembly.
The company enriches the inventory of aviation materials through the aviation asset management business of the early investment layout, laying the groundwork for the expansion of aircraft disassembly and aviation asset leasing business. During the reporting period, following the successful completion of the foreign 757-200 aircraft disassembly project in 2018, Tianhong Aviation Technology Co., Ltd. successfully won the tender for 4 A320 aircraft asset packages invited by China Southern International Financial Leasing Co., Ltd. In the future, the company will continue to dig deep into the field of aviation maintenance and support, and strive to become a global aviation service and equipment integrated support service provider.
With the acquisition of MMRO as the starting point, the global civil aviation maintenance business will be comprehensively distributed in the future: the company is a third-party maintenance enterprise that opened up overseas markets earlier in China, with layouts in Guangzhou, Shanghai, Tianjin, Harbin, Nanning, Chengdu, Hong Kong, Europe and Africa, with maintenance capabilities of more than 1600 avionics projects, more than 2300 aviation machinery projects and more than 24,000 pieces of equipment.
Since the end of 2018, the company has actively made use of the complementary advantages of MMRO and its own business to introduce European airline customers and give full play to the synergy at home and abroad. Through the acquisition, the company has expanded from the traditional ministry attachment maintenance to the whole aircraft maintenance field of route maintenance and base maintenance, as well as aviation asset management business, realizing the layout of the whole industry chain in the field of aviation maintenance and services. the market has also expanded to many countries in Europe and Africa. This acquisition can be used as the starting point for the layout of civil aircraft maintenance and protection of the whole industry chain, and the company will fully integrate the global civil aviation maintenance business in the future. In 2019, the company acquired DMH B.V. Through MMRO. The company, and MMRO to achieve complementary business advantages, after the completion of the acquisition, the company will have most of the narrow-body / wide-body aircraft route maintenance capabilities.
In 2019, the number of domestic aircraft fleet showed an overall upward trend, and the space of aviation maintenance market is still in the growth stage. Although the COVID-19 epidemic caused a cliff decline in the global air transport industry in 2020, we believe that the relevant negative impact will gradually abate as the epidemic is brought under control, but it will still constitute an uncertain factor for the company's business growth in the next year or two. At the same time, as the Aviation Division is mired in a liquidity crisis, the demand for aircraft dismantling and second-hand aircraft materials is likely to increase.
Investment suggestion: the company focuses on the aviation industry and locates itself as an integrated support service provider. The experience and technology accumulated in the deep ploughing industry, as well as the stable customer base of the aircraft assembly unit are the guarantee for the company's stable revenue growth. The company's performance is growing strongly, the market layout at home and abroad is taking a two-pronged approach, and the synergy effect of acquisition is beginning to show. In the future, the company will continue to work closely with the needs of the final assembly unit, and will take the acquisition of MMRO as the starting point for the overall layout of the global civil aviation maintenance business.
We predict that the net profit of the company in 2020, 2021 and 2022 is 70.5819 million yuan, 103 million yuan and 176 million yuan respectively, and the EPS is 0.29,0.43 yuan and 0.73 yuan respectively. The current stock price corresponds to 45.76,30.86,18.18 times respectively. Taking into account the company's industry advantages and focused development in the aviation industry segment, the company is given 61 times PE with a target price of 17.69 yuan and a "buy" rating.
Risk tips: military market demand is lower than expected, new production capacity is not smooth, and raw material prices are rising.