Core ideas:

1. The company focuses on the field of aviation maintenance and microelectronics, and is a trinity high-tech enterprise with core equipment R & D and manufacturing, microelectronics, aviation engineering technology and services as its main business. The company's products are related to high-end equipment, commercial civil aviation and high-performance integrated circuit manufacturing, including aviation maintenance, aviation engineering technology and services, semiconductor manufacturing, 5G mobile communications, AI artificial intelligence, radar, automotive electronics, power electronics, optical fiber communications, 3D sensing, new energy, defense and other fields.

2. Aviation maintenance and maintenance business is still the main source of business income, and the proportion of microelectronics business income is increasing year by year. The company's current main business can be subdivided into five major businesses: aviation maintenance, core equipment R & D and manufacturing, aviation training, aviation leasing and microelectronics. In terms of operating income, aviation maintenance, maintenance, leasing and R & D manufacturing contributed mainly to revenue, but the proportion continued to decrease, and the microelectronics business began to accelerate the output value in the harvest period. In 2015-19, the contribution of the company's aviation maintenance, maintenance, leasing and R & D manufacturing business to revenue in the same period gradually decreased, from 76.69% in 2015 to 52.23% in 2019. The output value of the company's microelectronics business in the semiconductor field has gradually increased, and the proportion of revenue has increased from 4.74% in 2018 to 10.99% in 2019. The operating income of Haiwei Huaxin, a subsidiary engaged in this business, has increased rapidly from 4 million yuan in 2017 to 89 million yuan in 2019. In terms of profits, the company's overall gross profit margin has declined in recent years, but the decline has gradually slowed down. It is expected that with the increase in the proportion of revenue from the microelectronics business with high gross profit margin and expected fast growth, the overall gross profit margin is expected to stabilize and pick up. Affected by the intensification of competition in the original business market and changes in the business structure, the company's overall gross profit margin has dropped from 56.67% in 2015 to 41.85% in 2019, but the overall decline has slowed down, and the gross profit margin has remained around 41.84% in the past three years. Affected by the effect of scale, the release of production capacity and the improvement of demand, the gross profit margin of the company's microelectronics business has increased rapidly, from 34.90% in 2018 to 49.50% in 2019.

3, the domestic compound semiconductor leader, the layout of science equipment, 5G macro base stations, communication optical devices and other high-end fields, last year to achieve the completion of six major processes and run through the production line, the application of downstream semiconductor materials increased, the company's microelectronics business can accelerate the growth is expected.

(1) the leading second / third generation compound semiconductor enterprises covering special markets and civilian products markets in China. The main body of the company's microelectronics business is Haiwei Huaxin. Haiwei Huaxin is an international first-class high-performance integrated circuit manufacturer, mainly engaged in second-generation / third-generation compound semiconductor wafer manufacturing services. Customers are divided into special market and civilian market, and have completed the process development of many products, including gallium arsenide, gallium nitride, silicon carbide, etc., which can support the manufacture of power amplifiers, photodetectors, lasers, power electronics and other products. Business covers aviation, aerospace, satellite, consumer electronics and other fields, application scenarios include 5G mobile communications, radar, 3D sensing, new energy, national defense and other fields.

(2) the technological advantages of gallium nitride and gallium arsenide are obvious, the process technology has entered the harvest period in 2019, and the downstream customers and applications have been expanded smoothly. According to the company's public research minutes on 2020-1-9 and 2020-2-19, Haiwei Huaxin belongs to the first-class echelon in the patented technology of gallium nitride chips in the world, and achieved the first 6-inch VCSEL in China in 2019, with high luminous efficiency and high rate of quality products. In 2019, Haiwei Huaxin realized the completion of six major processes and the completion of the production line, and transformed the process into products. In terms of special equipment business, the company expanded more than 100 customers in 2019 and has more than 60 fixed customers, including core mainstream customers such as aerospace and communications. With the support of the equipment department, the company has obtained 18 targeted projects of science equipment products in 2019, ranking high. It is expected that the scientific research tasks will be completed and all of them will be converted into mass production within half a year to two years, becoming a stereotyped project in the equipment department. The company expects that the order of the department will reach more than 100 million in 2020, a substantial increase compared with 2019. In the field of civil products, the company focuses on 5G and other directions that have a high threshold and have a traction effect on the compound semiconductor industry. In 2019, the company has completed all the process research and development in the field of 5G base stations, and the RF GaN of 5G macro base stations has passed the reliability verification, which can provide a lower cost and more efficient chip manufacturing solution for 5G technology, and also marks that the company can provide manufacturing services for base station products.

The company said that in 2020, it will further increase the research and development of filters and SiC MOSFET products, and expand the production capacity of mass-produced products, achieve two-way expansion horizontally and vertically, and seize the construction opportunities of macro base stations and micro base stations.

(3) the third generation semiconductors represented by GaN mainly apply power electronics, microwave radio frequency and optoelectronics. GaN is one of the most potential semiconductor materials in the communication base station application field in the future. 5G communication popularity and domestic substitution acceleration in the core semiconductor field are expected to contribute to the momentum of business growth. According to the April 2019 journal "5G key Materials-A brief Analysis of the third Point Semiconductor material Market Development", GaN and SiC are also called the duo of the third generation semiconductors. Because of its large band gap, high breakdown electric field and stable chemical properties, GaN is one of the third generation semiconductor materials with the most potential for growth in the future in the field of communication base station applications. According to "focusing on the key technologies of the industry and seizing the development opportunity of the third generation semiconductors", the application of 5G communications will vigorously promote the industrialization of the third generation semiconductors. The transformation of the communications industry to the 5G era is expected to reshape the status quo of the radio frequency technology industry, or it will bring greater market opportunities for GaN radio frequency devices. According to the first document quoted in this paragraph, the global market for GaN radio frequency devices reached 3.1 billion yuan in 2018, of which the scale of base station-side GaN radio frequency devices is about 1.3 billion yuan. By 2023, the market size is expected to reach 9 billion yuan, with CAGR exceeding 23%. Among them, the market size of base station-side GaN radio frequency devices is expected to exceed 3.5 billion yuan.

4. the leader in the aviation maintenance industry has taken the lead in carrying out international overhaul business, benefiting from the aviation maintenance demand generated by the expansion of China's fleet and the growth of aircraft age in the medium and long term.

(1) the company has a full range of aviation maintenance items. The main body of the company's aviation maintenance and maintenance business is Tianjin Haite aircraft Engineering Co., Ltd., the main maintenance items are airborne electronic equipment maintenance, including flight management computer, flight control computer, etc.; airborne electrical instrument equipment maintenance, mainly includes electrical control system, aircraft instrument display system, electrical equipment and so on. Airborne machinery and equipment maintenance business includes auxiliary power plant APU, air conditioning system, hydraulic system, emergency life-saving system and so on.

(2) the company has complete qualifications, actively carries out overhaul business in the international market, and is mature and leading in the business of changing customers to goods, and has obvious competitive advantages. According to the company's 2019 annual report, the company is the first batch of bonded maintenance and remanufacturing pilot enterprises at home and abroad in 2019. At present, it has carried out overhaul business in the international market of third parties such as neighboring countries, and it is also the first private maintenance enterprise in China to obtain the CAAC maintenance qualification license of the Civil Aviation Administration of China. It has obtained FAA, EASA and other qualifications. And has a large passenger and cargo aircraft and a variety of civil, general-purpose aircraft and other types of aircraft maintenance capability. In terms of customer-to-cargo business, its "customer-to-cargo" project was successfully selected into the Green Manufacturing system Integration Project of the Ministry of Industry and Information Technology in 2018. At the same time, the company is the only service provider in the world with a B737700 passenger refitting plan (as stated in the 2019 company annual report released on 2020-3-31), and completed three B737700 aircraft passenger refitting projects in 2019. The company plans to obtain the FAA certification of Boeing 737-800 STC in mid-2020 and will carry out customer-to-cargo business.

(3) in the medium and long term, the expansion of China's fleet and the growth of aircraft age will bring greater demand for aviation maintenance and maintenance. According to the company's annual report, citing the Commercial aircraft of China's "Comac 2019-2038 Civil aircraft Market Forecast Annual report", the Chinese aviation market is expected to receive 9205 passenger aircraft with more than 50 seats in the next 20 years, with a market value of about US $1.4 trillion and an average annual growth rate of 5.2%. By 2038, China's passenger turnover will reach 4.08 trillion kilometers, and China's fleet will reach 10344 aircraft. According to the forecast, the total maintenance market value of the global civil, military, helicopter and business aircraft market will reach 184.3 billion US dollars in 2020, of which the Chinese market is expected to reach 10.96 billion US dollars. It is estimated that there will be 1500 passenger-to-cargo aircraft in the world in the next 10 years, with a large market space. As an enterprise with leading domestic maintenance capacity and more mature customer-to-goods business, the company's business volume may grow.

High-end equipment, emergency rescue, domestic civil aircraft part of the aviation core equipment suppliers, aero-engine electronic control system, oxygen system, electric winch, auxiliary power plant electronic components and other products have been finalized smoothly, high-end equipment demand + domestic alternative acceleration company related business development is expected. In the field of high-end equipment, according to the company's annual report, the company has reached the international advanced and domestic leading level in the research and development of engine electronic controller, and a certain type of engine controller has won the first prize for scientific and technological progress of national defense. According to the summary of the company's public research on 2020-2-19, the number of models of the company's aero-engine electronic control system has grown from one to seven in 2019, and four have been approved. In terms of production, with the installation of relevant models of the equipment department, the company's scientific research products have also begun to enter the stage of mass production, including helicopter electric winch and pulse oxygen supply system, etc.; in the field of emergency rescue, the helicopter electric rescue winch with international advanced level has been finalized and equipped in batches. Carry out technical cooperation with Comac to develop a long-term oxygen supply system for domestic civil aircraft, realizing the expansion of the oxygen supply system from specific customers to the civil aviation market. It is expected that with the upgrading of high-end equipment and the acceleration of domestic substitution in the field of civil aviation under the influence of internal and external environment, the company's related business is expected to achieve steady growth by virtue of technology and customer advantages.

Profit forecast and investment rating: the company is in the forefront of the aviation maintenance and equipment manufacturing industry, the compound semiconductor business is the domestic leader, and the popularization of 5G communications and the acceleration of domestic substitution in the core semiconductor field are expected to contribute to the company's new momentum of growth. in the medium to long term, the expansion of China's fleet and the growth of aircraft age will bring greater demand for aviation maintenance and maintenance. Under the influence of the internal and external environment, the upgrading of high-end equipment and the acceleration of domestic substitution in the field of civil aviation are expected to promote the steady growth of the company's aviation high-end equipment manufacturing business. Give the company a "recommendation"

According to the rating, it is predicted that the annual EPS of the company in 2020-21-22 will be 0.13, 0.30, 0.47 yuan respectively.

Risk tips: microelectronics business capacity expansion is not as expected; microelectronics business customer expansion is disadvantageous; aviation maintenance business is affected by the epidemic uncertainty is high; aviation equipment downstream demand growth is not as expected.