Incident: The company released its 2023 annual report on August 24, 2023. 1H23 achieved revenue of 110 million yuan, YoY +42.8%; net profit of 118 million yuan, YoY +43.5%; net profit of non-return net profit of 111 million yuan, YoY +41.5%. The company's 1H23 performance is in line with market expectations. The increase in the company's performance mainly benefited from the increase in revenue from aerospace products, aviation process equipment, and ground communication, measurement, control and measurement equipment.
Revenue continued to grow in a single quarter; changes in product structure affected overall gross profit margin. Looking at a single quarter, the company: 1) 1Q23 to 2Q23 achieved revenue of 25 million yuan (YoY +206.5%) and 83 million yuan (YoY +22.6%), respectively; 1Q23 to 2Q23 achieved net profit of 06 million yuan (1Q22 was -07 billion yuan) and 0.12 billion yuan (YoY -36.9%), respectively. Revenue increased year over year in the second quarter, but profit declined year over year. 2) 2Q23 gross margin decreased by 6.80ppt to 60.3% year on year; net margin decreased by 15.23ppt to 13.1% year on year. In the first half of 2023, comprehensive gross margin decreased by 6.86ppt to 60.1% year on year, and net profit margin decreased by 0.67ppt to 14.9% year on year. The decline in gross margin was mainly due to the increase in operating costs (YoY +72.4%) higher than the increase in operating income (YoY +42.8%) as orders, revenue increased, and product structure changed.
Expense control capabilities have improved markedly; R&D investment continues to increase. On the cost side, the company's cost rate for the first half of 2023 was 40.2%, a year-on-year decrease of 12.90ppt. Among them: 1) the sales expense rate is 4.3%, a year-on-year decrease of 1.24ppt; 2) the management expense rate is 15.1%, a year-on-year decrease of 3.89ppt; the management cost is 316 million yuan, an increase of 13.5%; 3) the R&D expense rate is 21.8%, a year-on-year decrease of 6.07ppt; R&D expenses are 104 million yuan, an increase of 11.7% year-on-year, and the company's R&D investment continues to increase. By the end of 2Q23, the company: 1) accounts receivable and notes of 270 million yuan, which was basically the same as at the beginning of the year; 2) inventory of 140 million yuan, an increase of 65.9% from the beginning of the year, mainly due to product increases; 3) contract liabilities of 103 million yuan, an increase of 49.2% over the beginning of the year, mainly receiving advance payments from customers for experimental platform projects; 4) Net cash flow from operating activities - 190 million yuan, for the same period last year was -70 million yuan. It mainly paid taxes for the fourth quarter of 2021 and the second quarter of 2022, leading to business activities Cash flow expenses increased.
Many projects such as drones, satellite internet, and large-scale civil aircraft continue to advance; employee shareholding shows confidence in development.
1) As of the first half of 2023, the company's main research projects include drone wing surface structure development, satellite Internet ground station 4.5-meter antenna subsystem development, and development of integrated molding tooling for large civil aircraft composite fuselage sections, etc., involving various high-quality racing tracks such as drones, satellite Internet, and large-scale civil aircraft. 2) The company implements core employee shareholding and has 4 shareholding platforms. As of May 30, 2023, 160 core employees held a total of 10.46% of the company's shares, demonstrating confidence in the company's long-term development.
Investment suggestions: The company has been deeply involved in the aerospace field for 20 years and is a national-level “little giant” with expertise and innovation.
Benefiting from the accelerated release of demand in China's aviation equipment, drones, and civil aircraft markets, as well as the medium- to long-term development space for the satellite Internet industry, the company's performance may be flexible in the next few years. We expect the company's net profit to be 172 million yuan, 261 million yuan, and 397 million yuan respectively from 2023 to 2025. The current stock price corresponding to the PE from 2023 to 2025 is 53x/35x/23x. Maintain the “Recommended” rating.
Risk warning: downstream demand falls short of expectations; new production capacity does not meet expectations; profit margin fluctuations, etc.