Incident: The company announced a pre-increase in its 2023 results. It is expected to achieve net profit of 1,761 billion yuan, an increase of about 102.0% over the same period of the previous year (statutory disclosure data), and the revised financial data increased by about 30.3% year on year; it is expected to achieve net profit without return to mother of 1,311 billion yuan, an increase of about 88.6% year on year. The financial data after the review is about 86.9% year on year; basic earnings per share are 0.4140 yuan/share. We believe that:

Demand for the company's aircraft products is strong. Currently, the company has completed the share exchange to absorb the merger of China Aviation Electromechanical. The asset size and sales revenue have increased dramatically, and the operating performance in 23 years has increased significantly compared to the same period last year before the restructuring.

Continuing to build an internationally competitive aviation airborne systems supplier company completed the absorption and merger of China Aviation Mechatronics on April 13, 2023; 5 billion yuan of supporting capital was received in June to build 10 projects, including projects to increase the production capacity of airborne products such as aviation gas induction subsystems, construction projects to increase production capacity of hydraulic actuation systems, and projects to increase aviation power system production capacity, and supplement liquidity. By building a digital and intelligent production line, the company improves scientific research and production capacity, and enhances product production efficiency, which helps the company improve product competitiveness and expand market share. We believe that after absorbing and merging China Aviation Mechatronics, the company will help integrate the superior resources of both parties, achieve complementary advantages, effectively enhance the company's core competitiveness, conform to the systematic, integrated and intelligent development trend of the global aviation airborne industry, and build an internationally competitive aviation airborne industry.

The development of the military and civilian market is a double opportunity. Business optimization helps improve performance and accelerates the mass production and upgrading of China's military aircraft. Demand for military aircraft airborne products is strong; the C919 civilian aircraft has already started commercial operation and thousands of aircraft are being ordered, and the C929 has entered the preliminary design stage.

The company is a leader in military aviation airborne products. At the same time, several subsidiaries have become supporting suppliers for the C919 project, laid out the C929 project ahead of schedule, joined the Civil Aircraft Maintenance Association, and seize new development opportunities for civil aircraft.

In December 2023, the company announced that the total amount of 2024 related transactions is 56.155 billion yuan, up 6.18% from the 2023 forecast, and remains high, with sales of 22.0 billion yuan, +2.33%; provision of labor services of 450 million yuan, +12.50% year over year; lease amount of 90 million yuan, +28.57% year over year; deposit and loan amounts all increased to 13.00 billion yuan, +7.44% year on year, and +18.18%, respectively. We believe that:

As the flagship platform for the launch of the airborne industry under the aviation industry, the company is expected to simultaneously usher in an increase in the supporting value of stand-alone products, an increase in demand for products, and an increase in the penetration rate of supporting models. Combined with the back-end maintenance market brought about by the increase in the inventory of aviation products, the future prospects are positive. At the same time, the company expects the amount of transactions related to 2024 to remain high, and the demand side will continue to thrive.

Profit prediction and rating: The company has now completed the absorption and merger of AVIC Mechatronics. The scale and product lineage have been significantly expanded, and the airborne system and equipment development capabilities have been comprehensively enhanced. The aircraft airborne flagship is expected to usher in a new stage of development. There is a certain gap between the current performance forecast and the operating target at the beginning of the year. Therefore, we adjusted the company's 2023-2025 forecast net profit of 17.61/22.57/27.33 billion yuan (previous value was 22.81/28.17/3.310 billion yuan) and PE was 30.94/24.14/19.94x, maintaining a “buy” rating.

Risk warning: Market competition increases risk; military business fluctuation risk; operational risk; supply chain risk; technological innovation risk; quality control risk; risk of postponement of fund-raising projects; financial data related to performance forecasts has not been audited by certified public accountants, and the company's financial department conducts preliminary accounting based on its own professional judgment. The specific and accurate financial data is subject to the company's officially disclosed annual report.