Event: The company released its 2023 annual report. In 2023, we achieved revenue of 4.780 billion yuan, an increase of 7.50% year on year, and achieved net profit of 1,031 billion yuan to mother, an increase of 34.90% year on year.

Key points of investment

Delivery projects increased, and revenue in 2023 increased 7.50% year on year: 2023 revenue was 4.780 billion yuan, up 7.50% year on year. The reason was the increase in sales of aviation composite raw material products and brake products; net profit to mother was 1,031 billion yuan, an increase of 34.90% year over year due to changes in product structure, cost reduction and efficiency, and scale effects. In 2023, the gross margin of the company's new material products reached 36.79%, an increase of 5.92 percentage points, and the gross margin of machine tool products reached 7.75%, an increase of 14.81 percentage points. The main reason was that the company rationally arranged the development and delivery of various products to ensure the smooth completion of various model tasks, and achieved an effective improvement in the quality of the main business indicators and a reasonable increase in volume.

Focus on the main business to strengthen technological transformation and launch new projects to improve delivery capacity: In 2023, the company insisted on focusing on its main business, seizing cross-generational development opportunities in aviation equipment and composite materials technology, continuously strengthening investment in technology research and development, and further consolidating the company's market position and technical advantages. In 2023, the company received 46 new patents, authorized 26 patents, and 271 patents were valid as of the end of 2023. The company is carrying out the construction of an advanced aviation pre-impregnation production capacity improvement project, building an advanced pre-impregnation production plant and multiple automated pre-impregnation production lines. After the project is put into operation, it will greatly enhance the company's production and delivery capacity and strongly support the achievement of the company's medium- to long-term development goals.

Localization of key materials, superposition integration into international supply chain opportunities, development of two-wheel drive companies: The company's business scope covers new aviation materials, high-end intelligent equipment, and other professional application fields, and is one of the few specialized suppliers of aeronautical composites in China. In terms of the composite materials business, the company is a leading domestic aviation composite company. It participates in the supply of composite materials for models such as the C919. It is expected to benefit from China's promotion of localization of key raw materials and ushered in continuous improvement in performance. At the same time, there are still factors of political instability around the world, bringing certain opportunities for integration into the international supply chain and bringing opportunities for the company to further internationalize.

Profit forecast and investment rating: The company's performance is in line with expectations. Based on the boom in the military industry during the 14th Five-Year Plan period and considering the company's central position in the carbon fiber industry chain, we expect the company's net profit to mother in 2024-2026 to be 12.86 (-0.71)/15.67 (-1.17)/1,884 billion yuan, respectively; corresponding PE is 21/18/15 times, maintaining a “buy” rating.

Risk warning: 1) Risk of strategic initiatives failing to achieve effective management of resources; 2) Risk of composites business being affected by macroeconomic fluctuations and policies.