The company's performance grew steadily in 2023, and growth may accelerate in 24

The company announced its 2023 performance forecast. It is expected to achieve operating income of 2.104 billion yuan, an increase of 44.69% compared with the same period last year; it is expected to achieve net profit of 185 million yuan, an increase of 1.15% over the previous year; and net profit without return to mother of 159 million yuan, a year-on-year decrease of 5.82%. The company implemented an equity incentive plan. The amount of share payment expenses incurred in 2023 was 83 million yuan. After excluding the impact of share payment fees, net profit attributable to owners of the parent company was 257 million yuan, an increase of 14.50% over the same period last year. The short-term slowdown in the company's performance was mainly affected by factors such as inventory drops and product price adjustments for downstream customers starting in June. We believe that with the steady growth of the company's downstream domestic market as a whole, demand for foreign commercial aero engines continues to recover, and the company actively reduces costs and increases efficiency in processes, materials, etc., and the gradual release of Deland's production capacity, the company's future performance may continue to improve.

The company's foreign trade business is in strong demand and is expected to maintain rapid growth

The company entered overseas markets early, has many years of international business experience, and has fully obtained supplier qualifications for mainstream international aero engine manufacturers. The company signed new agreements with aviation customers such as Safran, Pratt & Whitney, and Rollo in 2023. The long-term agreement period is 3-7 years, involving mainstream commercial engine models such as LEAP, and its share has also increased significantly compared to the past. At the same time, the company is actively expanding application areas in overseas markets. The company's overseas non-aviation customers include international industrial giants such as GE Energy, Alfalayal, BakerHughss, Fuji Electric, and Meggitt. In terms of overseas customers, overseas revenue accounted for more than 30% of the company's total revenue in 2023, and the company expects the share of the company's overseas business to continue to increase in 2024, reaching about 40%. We believe that, benefiting from the overall recovery of the overseas aviation industry, the overall demand in the company's foreign trade sector is strong. At the same time, the company is actively exploring overseas markets and successfully signing new long-term agreements, and the market share is expected to increase further. The company currently has sufficient orders. As of the end of the third quarter of 2023, the number of active orders was 2,314 billion yuan, and future development can be expected.

The degree of intelligent automation of the new production line has increased, and the company that trains internal skills to improve quality and efficiency promotes the intelligent and automated production line of the Delan production line to maximize production capacity. On the one hand, labor costs will be reduced, and labor productivity is expected to continue to improve; on the other hand, product quality and accuracy will be improved, thereby further improving the first-pass rate of the company's products and reducing material consumption. According to the company's estimates, the output value of the Deland production line is 10-15 billion yuan, and the overall production capacity has a lot of room for flexibility under different product combinations. From January to September 2023, the actual capacity utilization rate of the Deland production line reached 63%, and there is still room for improvement. As future capacity utilization increases, the overall cost reduction of the company's products is expected to decrease.

Profit forecast and rating: We believe that in the future, overseas business is expected to increase the supporting share and release of existing products, domestic aviation and combustion engine demand is steadily improving, and the future prospects of domestic and foreign two-wheel drive companies are improving. The 23-year results were adjusted according to the company's performance forecast. We adjusted the company's projected net profit for 2023-2025 from 2.06/3.32/441 million yuan to 1.85/3.32/441 million yuan, corresponding P/E of 26.28/14.70/11.06x, maintaining the “buy” rating.

Risk warning: the risk of fluctuations in the military goods business, the risk that the development of new models of equipment will not meet expectations, the risk that the progress of the fund-raising project and profits will not meet expectations, the above data is based on the consolidated statement data but has not been audited, and the final results are based on the company's 2023 annual report data, etc.