Incident: The company released its 2023 annual report, achieved revenue of 29.07 billion yuan (+4.63%) for the full year of 2023, and achieved net profit of 1,886 billion yuan (+39.62%) to mother. Looking at a single quarter, 23Q4 achieved revenue of 8.276 billion yuan (+9.07%) and net profit to mother of 236 million yuan (+25.94%).

After the restatement, performance was +40% year-on-year, profitability improved, and R&D investment increased. The company achieved revenue of 29.07 billion yuan (+4.63%) in 2023. The defense aviation industry has achieved remarkable development results, and the strategic layout of the civil aviation industry is progressing steadily. Net profit of 1,886 billion yuan (+39.62%) was achieved in 2023, mainly due to the fact that after the absorption and merger was completed, the statements for the same period of the previous year were restated in accordance with the same controlled enterprise merger policy. In 2023, the company's net interest rate increased by 0.95 pct to 7.41% year-on-year, with gross margin rising to 29.73% (+0.95pct), and the cost ratio for the period rose to 21.76% (+1.77pct). Mainly due to the company's increased investment in R&D, the R&D expense ratio increased by 2.13 pct to 12.03%.

The company will continue to promote high-quality development in 2024, and related transactions are expected to increase. The company expects to achieve revenue of 28.522 billion yuan (-1.67%) in 2012. Defense business revenue declined due to industry policies, market environment, and insufficient order contract adjustments, etc., and other business revenue maintained a growth trend; the company adheres to the concept of high-quality development and is expected to achieve total profit of 2,437 billion yuan (+8.0%) in 24. In addition, the company expects related sales of 22 billion yuan in '24, an increase of 2.33% over the estimated amount in '23, and an increase of 23.94% over the actual amount accrued in '23.

The special absorption and merger work has been successfully completed, and the aviation airborne leader has entered a new stage of development. On April 13, 2023, the share exchange and merger of China Airlines Electromechanical Project was successfully completed. On June 26, 2023, 5 billion yuan of supporting funds were raised to be used for the construction of projects such as increasing the production capacity of airborne products such as aviation gas induction subsystems, increasing the production capacity of hydraulic actuation systems, and improving the production capacity of aviation power systems. Through specialized integration of core military assets and business, the technical, personnel, supply chain, customer and other resources of the two sides can be better coordinated and combined to achieve complementary advantages. In the future, as a leading domestic aviation airborne company, the company will strive to comprehensively improve the development capabilities of airborne systems and equipment, build a world-class aviation airborne systems supplier, and is expected to usher in rapid development with military and civilian business collaboration.

As the company completed the merger in '23, net profit to mother was adjusted to be 20.79 billion yuan and 23.53 billion yuan (previous value was 11.79 billion yuan and 1,362 billion yuan), and net profit to mother was added to 26 billion yuan. Referring to the comparable company's PE 27 times in '24, the target price was 11.61 yuan, maintaining an increase in holdings rating.

Risk warning

The progress of military orders and revenue confirmation falls short of expectations; the restructuring progress of research institutes falls short of expectations