Incidents:

On April 20, 2023, the company released its 2022 annual report and 2023 quarterly report. In 2022, the company achieved revenue of 998 million yuan, a year-on-year decrease of 11.88%; achieved net profit of 314 million yuan, a year-on-year decrease of 25.66%, falling short of expectations; net profit after deduction of 308 million yuan, a year-on-year decrease of 24.93%; the first quarter of 2023 achieved revenue of 314 million yuan (-14.55% year-on-year), after deducting net profit of 134 million yuan (-12.80% year-on-year).

The company's product structure was adjusted in '22. It is estimated that the civilian goods business will gradually increase in '23. The company's aircraft brake control system and wheel business will achieve revenue of 410 million yuan, +29.74% year on year; the brake disc (spare) business achieved revenue of 134 million yuan, -31.38% year on year; inspection and inspection business revenue was 441 million yuan, -20.60% year on year; other businesses achieved revenue of 13 million yuan, -48.40% year on year.

In terms of gross margin, the aircraft brake control system business was 60.23%, year-on-year - 16.16pct, inspection business was 69.50%, year-on-year - 11.26pct, brake disc (spare) business was 85.93%, and -3.83 pct year-on-year.

The pace of demand and acceptance of the company's military products changed in '22, leading to a decline in revenue from brake discs (spare) and inspection tests. The company increased R&D and equipment procurement in 2023Q1, and revenue is expected to gradually recover in the second quarter of '23.

Performance is expected to pick up in the first half of the year, and fund-raising projects are expected to complete many of the company's military products research projects in 2022 by the end of the year, achieving revenue from the civil aviation business for the first time. As the external environment improves, the military market and civil aviation market are expected to recover. Affected by the external environment, the inspection of the purchased equipment could not be completed as planned, and the company's main fund-raising projects were extended until December 31, 23.

Profit Forecasts, Valuations, and Ratings

Considering the decline in the company's performance in the first quarter of 2023, we expect the company's revenue for 2023-25 to be 14.29/18.41/2,023 billion yuan respectively (the original value in 23-24 was 1,636/1,970 million yuan), the corresponding growth rate was 43.20%/28.81%/9.93%, respectively, and the net profit of the parent mother was 537/711/780 million yuan (the original value in 23-24 was 623/769 million yuan). The corresponding growth rate was 70.91%/32.43%/9.83 billion yuan respectively %, corresponding to a three-year CAGR of 35.46%. The EPS was 1.62/2.14/2.35 yuan/share, respectively, and the corresponding PE was 28/21/20 times, respectively. Since the company is the core supplier of military aviation braking systems, according to the relative valuation method, referring to comparable company valuations, we gave the company 35 times PE in 2023, with a target price of 56.70 yuan. Maintains a “buy” rating.

Risk warning:

Downstream military orders fluctuate, and the progress of fund-raising projects falls short of anticipated risks.