Incident: The company released its 2023 annual report. In 2023, the company achieved operating income of 4.780 billion yuan, a year-on-year increase of 7.50%, and achieved net profit of 1,031 billion yuan to mother, an increase of 34.90% over the previous year.

Multiple model tasks were successfully delivered, and the market continued to expand. In 2023, the company continued to focus on its main business to improve product delivery quality, and sales of aviation composite raw material products and brake products continued to grow. In terms of the new aviation materials division, aviation industry composites fully completed annual production tasks, with a timely delivery rate of over 97%, achieving operating income of 4.515 billion yuan, +6.01% year over year, and achieving net profit of 1,088 billion yuan, +30.20% year over year; Premium Bermuda focused on increasing production capacity, and achieved sales revenue of 154 million yuan, +95.76% year over year, and achieved net profit of 14 million yuan, +2861.83% year over year. In terms of the equipment division, the company is speeding up the improvement of aviation parts processing capacity and business expansion, and is expected to speed up loss reduction in the future. In 2023, the division achieved operating income of 66 million yuan, -21.25% over the same period last year, and achieved net profit of -31 million yuan, a year-on-year loss of 0.3 billion yuan. The company's revenue target for 2024 was 5 billion yuan, up 2.04% from the 23 target, 4.58% higher than the actual revenue for 23, and the total profit was 1,282 billion yuan, up 9.01% from the target for 23, and 5.69% higher than the total actual profit for 23. Among them, the new aviation materials business (including civil product conversion business) achieved revenue of 4.912 billion yuan, total profit of 1.37 billion yuan, and equipment business achieved operating income of 73 billion yuan and total profit of -15 billion yuan.

Profitability continues to increase, and R&D innovation is progressing smoothly. In 2023, the company achieved a gross profit margin of 36.75%, +5.81 pct year on year, achieved a net profit margin of 21.71%, +4.45 pct year on year, and increased profitability. In terms of period expenses, the company achieved a sales expense ratio of 0.67%, +0.04pct year over year, and a management expense ratio of 7.44%, and +1.05pct year over year. Mainly due to increases in labor costs, repair costs, and insurance premiums for the first batch (set) products, etc., the financial cost ratio was -0.59%, and -0.05pct year over year, achieving a R&D cost rate of 3.67% and +0.00pct year over year. The company invested 181 million yuan in R&D throughout the year, accepted 46 patents, obtained 26 authorized patents, completed the C929 front-fuselage wall panel trial production verification (PPV) wall panel development, completed the first delivery of a new carbon fiber pre-impregnated material, and Yousai Bermuda completed the A330 flight verification test.

The number of projects under construction has increased, and the expansion of additional lines has enabled development. By the end of 2023, the company's construction project was 273 million yuan, +80% year-on-year and +38% month-on-month, mainly due to the increase in the current phase of the aviation industry composite construction advanced pre-impregnation production plant expenses. The progress of the company's advanced pre-impregnation production plant project has progressed from 29% of 23H1 to 54.63% at the end of 23. It is expected that 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.

Profit forecasting and investment ratings. We expect EPS to be 0.79/0.92/1.11 yuan in 2024-2026. Combined with the PE valuation situation of comparable companies, the company will be given a PE valuation of 30-35 times in 2024, with a corresponding reasonable value range of 23.74-27.70 yuan, maintaining the “superior to the market” rating.

Risk warning. Due to the volatility of military orders, the expansion of the civilian goods market fell short of expectations.