Event: on August 28, the company released its 2022 semi-annual report. Income in the first half of 2022 (586 million yuan, + 21.60%), net profit (147 million yuan, + 15.00%), 2022Q2 income (318 million yuan, + 8.25%), net profit (91 million yuan, + 7.93%).

The demand for a strong army has led to a steady growth in income, and the proportion of aviation business has reached a new high. As the only professional R & D and manufacturing base of aviation oxygen system and airborne fuel tank inerting protection system in China, the company is also the largest aircraft auxiliary fuel tank and the leading domestic manufacturer of special refrigeration equipment, actively opening up the market during the reporting period, tapping potential customers, and the core benefits from the equipment demand under the background of a strong army. During the reporting period, the company achieved operating income (586 million yuan, + 21.60%), and the revenue scale achieved steady growth, of which:

1) Aviation equipment, the company mainly provides supporting products and services for the major domestic mainframe factories and the military, and supplies all domestic military aircraft in research / service and some civil aircraft with equipment demand. the products cover aviation oxygen system, airborne fuel tank inerting protection system, aircraft auxiliary fuel tank and sensitive components, oxygen ground equipment and so on. In the first half of 2022, the company obtained a number of supporting orders for new models, and the aviation equipment business achieved rapid growth, with a total operating income of 403 million yuan, + 35.72%), accounting for 68.67% of the total revenue (68.67% of the total revenue 7.14pct) reached an all-time high. The company as an aviation subsystem subdivision track only for enterprises, the rapid growth of related business and share of the increase fully reflects the current aviation equipment downstream demand for a high degree of prosperity.

2) Special refrigeration is carried out through Swan Refrigeration, a wholly-owned subsidiary. At present, military special refrigeration equipment has achieved full coverage of the air, military, naval and rocket armies, and with the help of military technological achievements, it has been continuously expanded into special high-temperature-resistant air conditioners and special vehicle air conditioners in the industrial and civilian field. During the reporting period, the company fully benefited from the release of downstream equipment by virtue of the dominant position of the military special refrigeration market, while civilian refrigeration actively expanded its customers, achieving a total operating income in the first half of 2022 (132 million yuan, + 4.81%), accounting for 22.45% of the business income (22.45%). 3.59pct).

From a quarterly point of view, the company achieved operating income in the second quarter (318 million yuan, + 8.25%) and homed net profit (91 million yuan, + 7.93%). The growth rate is slightly slower than that of the previous quarter or is mainly due to the combined effect of the large base increase in the past two years and the fluctuation of the delivery pace in a single quarter. The company's single-quarter gross profit margin dropped from 48.57% of 21Q2 to 44.69% of 22Q2, or it is mainly due to the pressure of downstream price reduction with the increase in delivery scale, and it is expected that with the increase in the proportion of high value-added products delivered in the future, gross profit margin is expected to stabilize and pick up. During the Q2 period, the net interest rate per quarter is 28.57%, which is stable compared with the same period last year.

The gross profit margin may be under pressure due to the delivery structure, and the R & D investment continues to increase. In the first half of 2022, the gross profit margin decreased by 6.73pct to 41.51% compared with the same period last year. Among them, the gross profit margin of aviation products fell by 5.27pct to 42.31%, and the gross profit margin of special refrigeration equipment decreased by 9.51pc to 29.97%, or it was mainly due to price pressure during the decline in the delivery proportion of high-margin aviation products and the increase in sales scale during the reporting period. On the other hand, as the company continues to strengthen internal controls and operating efficiency continues to improve, the expense rate fell by 2.65pct to 16.89% in the first half of the year, the lowest level in the same period in history. It is worth noting that during the reporting period, with the increase of the company's R & D tasks and the progress of the project development, the number of R & D acquisition and delivery products increased, resulting in an increase of 49.34% in R & D expenses and an increase in 1.02pct to 5.47%. The intensive research task of the company and the continuous increase of R & D investment are expected to speed up the production of high value-added products in the future and form a positive boost for the improvement of the company's profitability. Finally, due to the asset impairment provision decreased by 13.5313 million yuan, while the credit impairment provision increased by 8.6442 million yuan, the company's net interest rate decreased slightly to 25.14% 1.44pct.

The balance sheet indicates that the economy is going up, and cash flow is expected to improve. The company's ending inventory reached 715 million yuan, an increase of 4.38% compared with the beginning of the period, of which raw materials increased by 6.56%, reflecting that the company is actively preparing materials for production. Inventory and issued goods increased by 4.47% and 11.32% respectively, or will continue to be cashed to the revenue end after delivery and revenue recognition are completed in the second half of the year. The company's projects under construction in the first half of 2022 increased by 118.44% compared with the beginning of the period, of which the main increment came from two projects: "712factory" and "digital flexible production line for cold night products". The company is currently actively expanding its production capacity. or reflect the positive expectation of future order demand from the side. The net cash flow of the company's operating activities in the first half of the year was-189 million yuan, a decrease of 182.32% over the same period last year, mainly due to a sharp drop in advance payments during the same period compared with the same period last year. It is expected that the cash flow in the second half of the year may be significantly improved with order delivery confirmation.

Investment advice: considering the high prosperity of aviation equipment, the higher growth rate of the company's aviation products than the industry, the greater performance flexibility contributed by the refrigeration business, and the remarkable results of the company's previous reforms, we expect the company's net profit from 2022 to 2024 to be 3.4,5.1 and 760 million yuan respectively, corresponding to PE of 27x, 18x and 12x, continue to recommend and maintain "buy-A".

Risk hint: the progress of military aircraft replacement is not as expected, the competition pattern in the refrigeration field is deteriorating, and civil aviation orders and domestic substitutions are not up to expectations.