Key points of investment

Event: The company issued an announcement on participating in the formation of a joint venture to revitalize idle assets and related transactions

On November 29, the company issued an announcement. In order to revitalize idle assets and make full use of asset value, the company plans to invest at the price of idle land use rights asset evaluation and form a joint venture with the related party, Beijing Ruisai Technology Co., Ltd.

This transaction constitutes a related transaction and does not constitute a major asset restructuring. The revitalization of idle assets and related transactions is expected to increase the company's total profit.

Joint venture situation: Hongdu Airlines invested 17 million yuan (provisional estimate, the details are subject to the evaluation report) at a price of 17 million yuan (provisional estimate, the details are subject to the evaluation report); Beijing Ruisai invested 7.28 million yuan in cash (provisional figure, the details are based on actual investment amount), with an investment ratio of 30%.

The company's performance in the first three quarters of 2023 is under pressure, affected by a decrease in the number of products delivered

1) The first three quarters of 2023 achieved operating income of 1,912 billion yuan, a decrease of 30% over the previous year; net profit of 0.9 billion yuan, a decrease of 43% over the previous year; net profit after deducting non-return net profit of 0.5 billion yuan, a decrease of 61% over the previous year, mainly due to a decrease in the number of products delivered by the company during the reporting period.

2) 2023Q3 achieved operating income of 196 million yuan, a decrease of 73% over the previous year, a decrease of 88% over the previous year; net profit of 0.02 billion yuan, a decrease of 10% over the previous year, a decrease of 88% over the previous year, and the performance of 2023Q3 fell short of expectations.

The company's inventory continues to grow, and contract liabilities have increased month-on-month, which may indicate an increase in the company's downstream demand

As of the end of 2023Q3, the company's inventory was 4.124 billion yuan, up 6% from the end of 2023Q2 and 19% from the beginning of the year, which may indicate that the company's downstream demand has increased and the company is actively preparing goods; the contract debt at the end of 2023Q3 was 5.492 billion yuan, an increase of 5% over the previous year, and there are sufficient orders in hand.

The company has made significant progress in the formulation and development of several key models

According to the company's announcement, the company has made significant progress in the establishment and development of several key models, and achieved new breakthroughs in related fields; the development of trainer series products has achieved remarkable results, the terminal market and international and domestic users have further expanded, and the company's position as the main research and production base for domestic trainer aircraft has been further consolidated.

Investment advice and profit forecasting

This revitalization of idle assets reflects the company's development strategy focusing on its main business. The company's trainer aircraft and defense products are both driven by “domestic demand+foreign trade”. According to the company's performance and operating conditions for the first three quarters of 2023, we have adjusted the company's profit forecast. It is estimated that in 2023-2025, the company's net profit is 1.19, 1.34, and 165 million yuan, up -15%, 12%, 23% year on year, and PE is 125, 112, 91 times. Considering the significant progress made in the company's key model planning and development work, we are optimistic about the company's future product lineage development and maintain a “buy” rating.

Risk Alerts: 1) Product Delivery Plans Delayed; 2) Risks such as Engine Supply Shortage.