Key points of investment
Event: Company Releases Third Quarter 2023 Report
1) Results for the first three quarters of 2023: The first three quarters of 2023 achieved operating income of 1,318 billion yuan, a decrease of 39% over the previous year; net profit of 243 million yuan, a decrease of 32% over the previous year; net profit after deduction of 236 million yuan, a decrease of 34% over the previous year.
2) 2023Q3 performance: From a quarterly perspective, 2023Q3 achieved operating income of 124 million yuan, a decrease of 75% over the previous year, a decrease of 83% over the previous year; net profit of 29 million yuan, a decrease of 76% over the previous year and a decrease of 81% over the previous year. The company's 2023Q3 performance is under pressure, mainly according to contract agreements. The structure of products delivered this quarter was different from the same period last year; at the same time, delivery of some products was delayed until October due to delays in product certification and acceptance.
2023Q3 gross margin declined sharply month-on-month, and net profit margin improved month-on-month 1) In terms of profit margin: 2023Q3 gross margin was 26.70%, down 6.56pct year on year and 5.52pct month-on-month; net margin was 23.56%, down 0.79pct year on year, up 2.77pct month-on-month.
2) In terms of period expenses: The period fee rate for the first three quarters of 2023 was 10.55%, an increase of 2.39ct over the previous year. Among them, the sales expense rate/management expense rate/R&D expense rate/financial expense ratio were 1.03%/4.82%/9.44%/-4.74%, respectively, compared to +0.65pct/+1.88pct/+3.49pct/-3.63pct. Due to pressure on the revenue side, the cost ratio for the period was high.
A steady increase in inventory may contribute to a new increase in revenue, and the increase in contract liabilities may reflect an increase in the company's on-hand orders 1) On the balance side: The company's inventory at the end of 2023Q3 was 1,563 billion, up 7% year on year, up 13% from the end of 2023Q2. In the future, with product delivery, inventory is expected to be converted into revenue; with product delivery, inventory is expected to be converted into revenue in the future; contract debt at the end of 2023Q3 was 481 million yuan, an increase of 33% over the end of 2023Q2, or reflecting an increase in the company's on-hand orders.
2) Cash flow side: Net cash flow from operational/investment/financing for the first three quarters of 2023 was $1.99/17.86/-239 million, respectively, compared to $3.05/-61/495 million for the same period last year.
Investment advice and profit forecasting
The company's products are based on the market strategy of “type 1 equipment serves both domestic and foreign markets”. The “Pterosaur” brand has market influence and enjoys a high reputation in the domestic and foreign military and civilian fields. Based on the company's three-quarter report performance and product delivery pace, we adjusted the company's profit forecast. It is estimated that in 2023-2025, the company's net profit is 408, 5.58 million yuan, and 735 million yuan, up 10%, 37%, and 32% year-on-year, and PE is 75, 55, and 42 times. Considering the company's product strength and market advantages in large-scale fixed-wing long-flight drone systems, it will maintain a “buy” rating.
Risk warning: 1) Domestic military order demand falls short of expectations; 2) military trade export orders fall short of expectations; 3) the company's product delivery pace falls short of expectations.