Event: the company releases its 2023 half-yearly report. During the reporting period, the company realized operating income of 1.194 billion yuan, down 28.15% from the same period last year; realized net profit of 214 million yuan, down 9.42% from the same period last year; and realized net profit of 210 million yuan, down 9.97% from the same period last year.

The delivery of products reduces the impact on revenue, and investment in research and development continues to increase. During the reporting period, the company realized operating income of 1.194 billion yuan, down 28.15% from the same period last year, and net profit of 214 million yuan, down 9.32% from the same period last year. According to the contract, the number of products delivered in the first half of the year decreased compared with the same period last year. In terms of expenses, the management expenses increased by 4.97% during the reporting period, which was due to the normal operation and management activities of the company; the sales expenses increased by 25.27%, mainly due to the active development of the market in the first half of the year, resulting in an increase in marketing expenses. At the same time, the company increased its R & D efforts, and R & D expenses increased by 9.50% during the reporting period, mainly due to the progress of R & D and increased investment in R & D projects in the current period. As of June 30, 2023, the company has 64 authorized patents, including 35 invention patents, 25 utility model patents and 4 design patents. During the reporting period, the company applied for 16 new invention patents, 1 utility model patent, 2 authorized invention patents, 4 utility model patents and 2 design patents.

The military and civilian UAV market is vast, benefiting from the increasing demand in many fields downstream. In terms of military UAV, the development of UAV system in China is later than that of the United States, Israel, Britain and other military science and technology powers. In the past decade, the development of UAV system in China shows a trend of accumulating abruptly. The core technology and mainstream products of military UAV system closely follow the forefront of international development. China's UAV system is developing rapidly and is entering a new period of innovation and leapfrog development. According to Tyre, global spending on the procurement of military drones will increase from about $12.1 billion in 2023 to $16.4 billion in 2032, with a total market size of $162.2 billion over the next decade. During the forecast period, countries'R & D spending on military drones is expected to reach $72.5 billion. In terms of civil UAV, benefiting from the development of the industry and the strong support of national policies, China's civil UAV has achieved rapid development and has gradually become one of the important sectors of the global UAV industry. Industrial UAV mainly serves enterprises, government departments and other users, to assist manual repetitive, labor-intensive work or directly replace manual work that is dangerous and difficult to get involved in. The application scene of industrial UAV is expanding, which is mainly concentrated in emergency industry, meteorological detection, artificial weather influence, surveying and mapping and geographic information, agricultural and forestry plant protection, security monitoring and other fields. Medium-and high-altitude long-flight UAV has a bright future in the industrial field.

The company's core technology is highly advanced, and "Type I equipment serves both domestic and foreign markets". In terms of research and development, the pterodactyl series UAV system products and related technologies developed and produced by the company have successively won the first prize, the second prize and the third prize of the National Defense Science and Technology Progress Award, and won the commendation award of the Fifth China Industrial Award. During the reporting period, the pterodactyl-1E UAV, the pterodactyl-2D UAV and the new command and control station completed scientific research and verification, and the development of pterodactyl-3 advanced in an orderly manner, adding to the company's competition for domestic and foreign markets. The company focuses on the main aviation industry, vigorously develops domestic and foreign customers in accordance with the requirements of "first-type equipment serving both domestic and foreign markets", and adheres to the development principle of "small core, big cooperation, specialization and openness". Constantly optimize and improve the scientific research and production system; continue to build a new system of digital design, digital production, digital operation and digital service, and enhance the new momentum of rapid development. The company takes the market demand as the traction, deeply excavates the domestic and foreign market orders, pays close attention to the operation quality, ensures the performance delivery, continues to deepen the reform, persists in innovation and empowerment, and constantly improves the company's operation and management level.

The company actively implements the national strategy and forms a new development pattern in which the domestic and international double cycles promote each other. The UAV industry belongs to the high-tech industry and strategic emerging industry encouraged by the state. The strong support of the national industrial policy has established the future development direction and created a good development environment for the high-end UAV industry. In the international market, the company continues to expand new users, and the pterodactyl series UAV systems have been exported to many countries. The pterodactyl series UAV has completed tens of thousands of takeoffs and landings and more than 100,000 hours of flight, and its superior performance and maturity have experienced high-intensity combat testing and achieved excellent results. In the domestic market, the company actively implements the national strategy, and regards supporting the first-class army construction and strengthening the army as the main direction of the company's development. at the same time, facing the major needs of the country, co-ordinating the development and upgrading of industries in key areas such as meteorology and emergency response, the company's products have been successfully applied to artificial weather influence, emergency communications and other fields.

Investment advice: the company is a leading company in the field of UAV manufacturing, with a number of core technologies and trump card products, benefiting from the rising demand in the downstream market. According to the model, the company's performance is expected to keep rising steadily. The net profit from 2023 to 2025 is expected to be 488 million yuan, 660 million yuan and 885 million yuan respectively, and the EPS is 0.72,0.98,1.31 yuan respectively. Maintain the "overweight" rating.

Risk hints: core competitiveness risk; business risk; financial risk; industry risk; macro environmental risk.