Steady growth in performance and maintenance of “buy” ratings

China Aviation Science and Industry has an industrial chain layout integrating aviation equipment design, R&D, manufacturing and supporting services. The complete aircraft business is expected to usher in restorative growth, and the aviation supporting business will continue to advance steadily. At the same time, the company's investment layout and specialized integration revolve around the aviation industry. A number of national reform measures have been implemented in the past two years, which has contributed to the company's long-term high-quality development. The company's 23H1 net profit increased 26.77% year-on-year to RMB 1,543 billion. We expect the 2023-2025 EPS of China Aviation Science and Industry to be RMB 0.44/0.55/0.68, and PE is 7/6/4x, respectively. Comparable companies had an average PE value of 20.1x in 2024 (according to Bloomberg's unanimous expectations). We gave the company 24PE 13x to reflect the mixed management valuation concession of China Aviation Science and Industry. The target price is HK$7.86, maintaining the “buy” rating.

The whole machine business improved significantly, and the supporting business grew steadily

China Aviation Science and Industry has three major business segments: complete aircraft business, aviation supporting business, and aviation engineering services.

The revenue of the 2023H1 aircraft business increased 56.28% year over year to RMB 9.747 billion, mainly due to increased sales of helicopter products and price adjustments for some helicopter products. The revenue of the 2023H1 aviation ancillary business increased 20.66% year over year to RMB 26.893 billion, mainly due to increased sales of avionics products. Avionics products and aviation parts products produced by China Aviation Science and Industry are widely used in military fields such as aviation and aerospace, as well as high-end manufacturing industries such as data transmission and new energy vehicles. The revenue of the 2023H1 aviation ancillary business fell 15.15% year on year to RMB 4,233 billion. Mainly due to the continuous improvement of the Group's business structure, some subsidiaries completed the disposal of new energy and other businesses at the end of last year.

A number of national reform measures were implemented in '23, and the specialization of the industrial chain accelerated in 2023.1.10. Zhongzhi Co., Ltd. issued an announcement planning to purchase additional assets and raise supporting capital. After the transaction is completed, Zhongzhi Co., Ltd. will hold 100% of Changfei Group's shares and 100% of Hafei Group's shares. This equity adjustment will help China Aviation Technology and Industry further rationalize the property rights relationship in its helicopter business. On 2023.12.11, Zhongzhi Co., Ltd. issued an announcement. The review agency of the Shanghai Stock Exchange reviewed the application documents for the restructuring plan and requested the company to submit the restructuring report in a timely manner (previous draft); on 2022.5.26, China Aviation Electronics, a listed company under China Aviation Science and Engineering, issued an announcement to absorb and merge China Aviation Mechatronics, 2023.4.14, and the merger project has been completed. This initiative helps China Aviation Science and Industry achieve deep integration of avionics and aviation mechatronics systems at the airborne system level, strengthen the business strength of aviation airborne systems and promote the specialization and industrialization of aviation supporting systems.

The aviation industry's only listing platform for the entire aviation industry chain. It is scarce 1) The company holds four A-share listed companies, Hongdu Airlines, China Aviation Optoelectronics, and China Aviation Airborne, as well as various unlisted companies such as China Aviation Planning and China Airlines Rongfu, and has formed a complete aviation industry chain with complete aircraft, parts, engineering services, and aviation-related investments. 2) China Aviation Science and Industry is the only target under the Aviation Industry Group that covers the entire aviation industry chain and has continuous business expansion capabilities. It is scarce.

Risk warning: Demand for helicopters is weakening; profit margins fall short of expectations.