The performance in the third quarter was in line with market expectations. On October 23, the company released a three-quarter report with operating income of 3.623 billion yuan, an increase of 7.69% over the same period last year, and a net profit of 844 million yuan for shareholders of listed companies, an increase of 25.84% over the same period last year. Of this total, the operating income of single Q3 was 1.21 billion yuan, an increase of 13.67% over the same period last year, and the net profit was 293 million yuan, an increase of 50.06% over the same period last year.

The sales of aviation composite raw materials and brake products grew rapidly, and the improvement of cost control and management capabilities led to a continuous improvement in profitability. The operating income of the aviation new materials sector reached 1.179 billion yuan in a single quarter, an increase of 12.08% over the same period last year. The net profit was 288 million yuan, an increase of 41.73% over the same period last year. The processing business of special equipment and aviation parts increased significantly. The operating income of the machine tool equipment business reached 18 million yuan in a single quarter, an increase of 43.74% over the same period last year. The net profit returned to the home was-8 million yuan, an increase of 2 million yuan over the same period last year, which may be caused by the adjustment of the product structure. The company persisted in focusing on the main business and achieved the release of Jinghang biology in the third quarter, increasing the investment income by 30 million yuan. Combined with the above factors, the company achieved a gross profit margin of 37.44% in the first three quarters, an increase of 4.46pct over the same period last year. We believe that, relying on the advantage of link card position, and on the premise of consolidating the stable growth of business, the company vigorously promotes the work of improving quality and efficiency, controlling fees and reducing costs, so as to achieve the continuous optimization of the company's internal management and product structure, resulting in a continuous improvement of profitability.

The forerunner of the aviation composite industry, insisting on innovation-driven achievements, the company continued to strengthen its R & D capacity building. In the first three quarters, the company spent 114 million yuan on R & D, an increase of 35.59% over the same period last year. In the first half of the year, the aviation industry undertook 14 tasks for the test and development of AG600 carbon fiber prepreg; carried out preparation work for the thermal distribution process of the upper panel of the front fuselage of the large wide-body airliner, and planned to complete the panel development this year; completed the delivery of multi-component composite structures for commercial engines; and continuously promoted the self-research and verification process of materials, the development of non-aviation products and the transformation of scientific and technological achievements of the Aviation Industry Manufacturing Institute. The process of verification and verification of brake models of civil aviation and rail vehicles has made remarkable progress in the first half of 2023. We believe that relying on the advantages of composite technology platform and implementing the concept of innovative development, the company is expected to continue to achieve field expansion and capacity expansion.

The total profit of new materials in 2023 is expected to be + 35.73% compared with the same period last year. The leading performance of Changpo thick snow carbon fiber prepreg is expected to continue to release the company's operating target in 2023, and the operating income is expected to reach 4.9 billion yuan in 2023, an increase of 10.21% over the actual value in 2022. The total profit is expected to be 1.176 billion yuan in 2023, an increase of 31.60% over the actual value in 2022. Among them, the aviation new materials business strives to achieve an operating income of 4.862 billion yuan in 2023, an increase of 11.57% over the actual value in 2022, and a total profit of 1.296 billion yuan, an increase of 35.73% over the actual value in 2022.

We believe that the company, as a leading enterprise of aviation prepreg in China, has a significant advantage in the middle link of the card industry chain, and it is expected that the products will achieve rapid volume with the increase of industrial demeanor and the proportion of carbon fiber consumption, and the performance is expected to achieve continuous release. With the increasing demand for prepreg for military and civil aircraft, and optimistic about the sustained and high growth of composite business for military aircraft, the proportion of carbon fiber composite materials for China's new military aircraft continues to rise. with the continuous progress of the batch production of new aircraft, the demand for carbon fiber composite materials has increased greatly. at present, the structural weight coefficient of foreign fourth-generation military aircraft has reached about 28%, and the proportion of follow-up composite materials is expected to exceed 35%. In terms of civil aircraft, China's C929 aircraft composite structure is expected to account for more than 50%. The application proportion of civil aircraft aviation composite materials (high-performance resin and prepreg, honeycomb and core materials) and composite components will continue to increase. We estimate that the demand for carbon fiber composite materials for large aircraft made in China will reach 48290 tons in the next 20 years, with an average annual demand of 2415 tons. On May 28, 2023, China Eastern Airlines Corp Ltd of China successfully took off from Shanghai Hongqiao Airport to Beijing Capital Airport using the world's first C919 large passenger plane delivered by Comac, officially opening the world's first commercial passenger flight of the aircraft, and accelerating the domestic application of composite materials. We believe that with the continuous increase in the demand for composite materials for military and civil aircraft in our country, the company's aviation composite business will continue to grow at a high level.

Profit forecast and rating: as the leading enterprise of composite materials in China, the company comprehensively considers multiple factors such as the continuous improvement of quality and efficiency, the continuous infiltration of carbon fiber materials and the acceleration of the civil field. We believe that the company has a good development trend in the short, medium and long term. To sum up, we maintain our previous profit forecast, and we expect the company's homed net profit in 2023-25 to be 10.131,3211,673 million yuan, corresponding to a PE of 34.02x26.08max 20.60x, maintaining a "buy" rating.

Risk hint: the progress of mass production of new military aircraft is not as expected; the progress of civil aircraft projects is not as expected; and there is a downward risk that military prices are controlled by the state.