Incident: The company released its 2023 annual report, achieving annual revenue of 5.32 billion yuan, +7.74% year-on-year, and 97.69% completion of the annual target; achieving net profit of 730 million yuan, +5.6% year-on-year. Looking at a single quarter, the 2023Q4 company achieved revenue of 1.22 billion yuan, +2.89% year-on-year, and realized net profit of 130 million yuan, or -10.9% year-on-year.
Comment:
The main business grew steadily, and the international business recovered: in 2023, the company's main aero engine and gas turbine control system grew steadily, achieving revenue of 4.69 billion yuan, +10.1% year on year, gross profit margin of 28.6%, +0.5pcts year on year; international cooperation business achieved revenue of 350 million yuan, +47.0% year over year, mainly due to the recovery of international aviation business, gross profit margin of 17.4%, -0.4 pcts year over year; non-aviation products and other businesses achieved revenue of 280 million yuan, compared to -36.1% year on year, mainly due to a decrease in orders from some downstream customers Impact, gross profit margin 21.2%, -8.6pcts year over year.
The performance of the four major subsidiaries is divided, and Beijing Aviation Technology's business is improving: the performance of the company's four major subsidiaries was somewhat differentiated in 2023, and overall there was a steady increase. Hangfa Western Control achieved revenue of 2.33 billion yuan, +8.7% year on year, net profit of 270 million yuan, +6.5% year on year; Hangfa Honglin achieved revenue of 1.69 billion yuan, +2.1% year on year, net profit of 270 million yuan, +9.4% year on year; Beijing Aviation Technology achieved revenue of 860 million yuan, +12.8% year on year, achieving net profit of 1.1 yuan, +26.1% year on year; Changchun Control achieved revenue of 370 million yuan, +6.0% year on year.
The trend of fund-raising project adjustment is improving: On December 5, 2023, the company announced that it passed the “Proposal on Adjusting Part of the Construction Investment Content and Construction Cycle of Private Fund-raising Projects in 2021”. The reasons for the adjustment of construction content include addressing the production capacity gap caused by incremental demand for partial development and small-batch production of existing aviation products, expansion of batch production of some products, and maintenance of some products, according to rolling plans related to OEMs, or predicting the overall future improvement of the engine industry.
Profit forecast, valuation and rating: Considering fluctuations in the pace of downstream customers, we lowered 2024-2025 net profit of 9.1%/12.2% to 8.7/1.02 billion yuan, and forecast the company's net profit to mother of 1.18 billion yuan in 2026, corresponding EPS of 0.66/0.78/0.90 yuan, respectively. The PE corresponding to the current stock price is 27x/23x/20x, respectively. As the most important supplier of aero engine control systems in China, Aviation Development Control will benefit deeply from the release of higher-generation localized engines and the maintenance support business brought about by the large number of engines in stock. Maintain the company's “buy” rating.
Risk warning: risk that defense spending will fall short of expectations; risk that demand for aero engines falls short of expectations; risk of supply chain stability falling short of expectations; risk of production capacity falling short of expectations.