Main points of investment

Large-scale fixed-wing long-time UAV leader, driven by UAV military trade business, the performance is growing rapidly. 1) the company is a large-scale fixed-wing long flight time UAV leader. In June 2022, it was listed on the Shanghai Stock Exchange's Kechuang Board. The company focuses on large-scale fixed-wing long-time UAV system into a systematic, multi-scene, whole-life overall solution, the main product is the pterodactyl series UAV system.

2) relying on the high-quality platform of Chengfei Group, the company's pterodactyl series UAV system has become a business card of "made in China", and its products and related technologies have won many national awards. Pterodactyl series UAV system has been exported to many countries along the "Belt and Road Initiative" route, and it is the main model for the export of UAV in China's military trade.

3) driven by the military trade of drones, the company's performance is growing rapidly. From 2019 to 2022, the company's operating income increased from 250 million yuan to 2.77 billion yuan, with a compound growth rate of 123%, and the net profit increased from-10 million yuan to 370 million yuan.

Military UAV domestic demand market is still in its infancy, industrial-grade UAV market space is broad 1) domestic demand: drones continue to be promoted by policy. Assuming that the United States accounts for about 0.4% of the defense budget for China's military UAV procurement costs, it is estimated that China's military UAV market demand will be about 6 billion yuan in 2023; by the end of the 14th five-year Plan, the annual scale of China's military UAV market is expected to exceed 10 billion yuan.

2) Foreign trade: according to SIPRI data, China's global military UAV market accounted for 17% of the global market in 2010-2020, ranking third. In the middle and high end, China's integrated drone is more cost-effective than the United States and Israel.

3) civilian use: according to Frost&Sullivan, China's industrial UAV market will reach 320.8 billion yuan in 2024, with a compound growth rate of 56% from 2020 to 2024.

The company's UAV technology strength is strong, and the pterodactyl series UAV takes the lead in the military trade market in China. 1) the UAV technology strength is strong: the company has accumulated and mastered 18 core technologies, nearly half of which are independent research and development.

The company has 46 authorized patents. At the end of 22, the company had 190 R & D personnel, an increase of 132% over the same period last year.

2) raise funds to invest in UAV business: it mainly includes UAV system development and industrialization projects, technical research and R & D capability improvement projects. On the basis of existing products, three types of UAV systems such as pterodactyl-2 development and pterodactyl-1E are developed to realize the pedigree development of UAV system.

3) the military trade market share of drones is the leading in China: according to SIPRI statistics, the cumulative number of military trade orders for pterodactyl UAVs ranked first in China from 2010 to 2020. According to the US Aviation Weekly in May 2021, the market share of pterodactyl UAV ranks second in the world among all-in-one UAV.

Profit forecast and investment suggestion

It is estimated that the company's net profit from 2023 to 2025 is 5.05,6.55 and 801 million yuan, an increase of 37%, 30% and 22% over the same period last year. PE is 0.75, 0.97 and 1.19 yuan, and EPS is 64, 49 and 40 times. Considering the company's product strength and market advantages in large fixed-wing long-time UAV systems, the company was given a "buy" rating for the first time.

Risk hint

1) domestic military order demand is lower than expected; 2) arms trade export order is lower than expected.