Core views

The company released its semi-annual report for 2023. In the first half of '23, the company achieved operating income of 873 million yuan, a year-on-year decrease of about 7.31%; realized net profit of 101 million yuan, a year-on-year decrease of about 19.28%; realized net profit of 98.5496 million yuan, a year-on-year decrease of about 14.10%.

Performance fluctuates slightly, waiting for the whole machine to collaborate

The company released its semi-annual report for 2023. In the first half of '23, the company achieved revenue of 873 million yuan, a year-on-year decrease of about 7.31%. The slight decline in revenue was mainly due to insufficient market demand. At the same time, military price policy adjustments and motor vehicle inspection policies continued to have an impact.

Realized net profit of 101 million yuan, a year-on-year decrease of about 19.28%; net profit of non-attributable net profit of 98.5496 million yuan was realized, a year-on-year decrease of about 14.10%. During the reporting period, the company's overall gross margin reached 35.62%, which did not fluctuate much. In terms of expenses for the period, the company's sales expenses for the first half of the year fell by about 12.37% compared to the same period last year, mainly due to a decrease in sales staff in Huayan in Shijiazhuang. Financial expenses fell sharply by about 44.30% compared to the same period last year, mainly due to an increase in the parent company's exchange earnings. Accounts receivable from asset-side companies increased by about 4.75% compared to the end of the previous year, and about 12.66% from the end of the previous period. This is mainly due to the long repayment cycle after military goods are delivered, and the company has not yet received payment. Overall, the current slight fluctuation in the company's performance is a normal fluctuation. The adverse effects of some policies on the military and civilian goods business have not yet been completely eliminated. After Chengfei Group's assets are subsequently injected into the company, the aircraft business is expected to collaborate with some of the company's existing businesses.

Cheng Fei made an overall injection to help the performance increase steadily

The company issued a draft asset injection report. It plans to issue about 2,086 billion shares to the Aviation Industry Group at a price of 836 yuan/share at a price of 17.442 billion yuan to purchase 100% of its shares in Chengfei Aviation Industry. This transaction does not involve raising supporting capital. The company's original controlling shareholder was China Airlines Electromechanical, and the actual controller was Aviation Industry Group. After the transaction was completed, both the company's controlling shareholder and actual controller were changed to the Aviation Industry Group, and Aviation Industry Chengfei became a wholly-owned subsidiary of the company.

The aviation industry Chengfei is one of the two major fighter manufacturers in China, and is a key aviation equipment contractor in China. Chengfei Group's main products are J-10 series third-generation/third-generation semi-fighter jets and fourth-generation mature stealth fighters. Currently, the products have been installed in batches for China's air force. The company's original main business was aircraft measurement and control products and power distribution systems, resistance/strain sensors, weighing instruments and software, and motor vehicle testing equipment. Hanzhong 101, a subsidiary of the company, is mainly engaged in the airborne power distribution system business. Its leading product, airborne power distribution management systems, has the highest market share in the same industry in the country. It has now developed fuel level sensors, cockpit lighting control systems, and installation equipment to achieve professional expansion into engines and lighting systems. The parent company's military products division is actively promoting electric measurement products such as joystick (disc) force and foot pedal force for aircraft, and has signed a series of product support agreements for various models.

After this injection was completed, the company added the development and production business of complete aviation equipment and accessories, and continued profitability was enhanced; the company's business was transformed and upgraded, and the product sector was extended from aviation system support to component and complete aircraft production. There may be synergies between the new and old aviation businesses, the overall product pattern was expanded, and the company's profit stability was further improved.

The upgrade of the national standard has brought demand for vehicle inspection. Motor vehicle safety technical inspection, which has great potential in the intelligent transportation market, requires that large vehicles such as heavy and medium-sized trucks must use automatic inspection devices for external dimensions, be equipped with chassis clearance meters, etc. The new standard has brought huge demand for updates and purchase of automobile inspection equipment, software, and related facilities. The subsidiary Shijiazhuang Huayan has seized the opportunity to vigorously develop motor vehicle performance testing systems, and has achieved significant growth in performance. In addition, the subsidiary is focusing on developing an intelligent driver training system, and has also made major breakthroughs in software and hardware technology research for the basic platform of the Internet of Vehicles. It has already been installed on a prototype vehicle for the customer, and the expected results are good. Currently, the smart vehicle inspection and smart driving school markets are still empty, and there is a large differentiated demand for connected vehicles business. As the number of cars owned in China continues to increase, the company's intelligent transportation business is expected to grow rapidly.

Intelligent products drive the development of strain measurement services

The company's traditional weighing equipment business continues to expand market fields such as testing, health, and consumption in an environment where market demand is weak, continuously improving profitability and reversing the downward trend. In terms of instrument business, Shanghai Yaohua, a subsidiary, launched IoT meters based on the concept of the Internet of Things, driving sales of digital instruments. At the same time, sales of scales and instruments were good, which had a positive impact on the company's performance. In the future, the strain measurement and control business will develop rapidly, driven by fields such as 3C products, wearable electronic products, and smart home appliances, and steady growth in performance can be expected.

Profit forecasting and investment ratings: The three major business guarantees have increased steadily throughout the year. The company is a leading domestic aviation measurement and control accessories company, and will directly benefit from the huge market demand for military aircraft in the future. After Chengfei's assets were injected, the company's business expanded to the development and production of complete machines and accessories, which may have contributed significantly to the increase in the company's performance. The civilian sector focuses on vehicle inspection products and smart markets. It benefits from relevant policy dividends and has a lot of room for growth and development. It is estimated that the company's net profit from 2023 to 2025 will be 259 million yuan, 314 million yuan, and 358 million yuan, respectively, with year-on-year increases of 34.20%, 21.24%, and 14.01%, respectively. The corresponding EPS from 23 to 25 will be 0.44, 0.53, and 0.61 yuan, respectively. The corresponding PE stock price is 100, 82, and 72 times, respectively, giving additional ownership ratings.