Incident: The company released its 2023 annual report on March 29, achieving annual revenue of 46.25 billion yuan, YoY +11.2%; net profit to mother of 3.01 billion yuan, YoY +30.5%; net profit after deducting non-return to mother of 2.91 billion yuan, YoY +32.8%. The company's performance is in line with market expectations. The increase in performance is mainly due to increased sales of products and the company's continuous promotion of low-cost sustainable development efforts.
Performance continues to grow; profitability has improved. Looking at a single quarter, the company: 1) 4Q23 achieved revenue of 11.62 billion yuan, YoY +2.6%; net profit to mother of 640 million yuan, YoY +13.9%; net profit after deducting non-return to mother of 650 million yuan, YoY +24.0%. 2) In terms of profitability, the company's 4Q23 gross margin was 11.2%, up 0.14ppt year on year; net margin was 5.8%, up 0.71 ppt year on year. The comprehensive gross margin for 2023 was 10.9%, up 1.00ppt year on year; net margin was 6.5%, up 0.95ppt year over year.
Cost control capabilities have improved; R&D investment continues to increase. In terms of expenses, the company's expense rate for the 2023 period was 3.7%, an increase of 0.42ppt over the previous year. Among them: 1) the sales expense ratio was 0.03%, a year-on-year decrease of 0.01ppt; 2) the management expense ratio was 2.2%, an increase of 0.02ppt; management expenses were 1 billion yuan, up 12.4% year-on-year, mainly due to increased expenses such as management consulting and equity incentives; 3) R&D expenses were 2.1%, an increase of 0.33ppt; R&D expenses were 980 million yuan, an increase of 31.9% year on year, mainly because the company increased R&D investment.
As of the end of 4Q23, the company: 1) accounts receivable and notes of $9.42 billion, up 170.2% from the beginning of the year, due to an increase in main sales products and an increase in acceptance bills not due at the end of the year; 2) Inventory of 11.65 billion yuan, a decrease of 4.3% from the beginning of the year; 3) Contract liabilities of 6.71 billion yuan, a decrease of 70.0% from the beginning of the year, mainly due to pre-paid advance payments to suppliers with confirmed revenue in the current period; 4) Advance payments of 9.29 billion yuan, a decrease of 29.8% from the beginning of the year, mainly due to the purchase price reports of prepaid suppliers in the early period; 5) Net cash flow from activities was- 4.39 billion yuan, compared to 2.68 billion yuan in the same period last year, mainly due to an increase in cash for purchasing goods and receiving labor payments.
It is proposed to raise 4.2 billion yuan for relocation, maintenance capacity, etc.; related purchases are expected to increase by 27% in '24.
On December 26, 2023, the company announced that it plans to raise no more than 4.2 billion dollars for Shenfei's relocation, capacity building for composite production lines and titanium alloy production lines, and to enhance the maintenance capacity of Ji Airlines, etc., which may help to deepen the company's integrated R&D, manufacturing, and repair industrial layout, while reducing the balance ratio and enhancing resilience to risks. In terms of related transactions, the company disclosed an estimated amount of 31.62 billion yuan in related procurement and labor acceptance in 24 years (up 27.5% from the actual amount incurred in 23), mainly due to an increase in expected procurement volume and increased demand for labor acceptance due to increased construction and tasks; it is expected to achieve 1.94 billion yuan in related sales and provision of labor (66.1% decrease from actual amount incurred in 23), mainly due to a decrease in expected sales volume; the estimated amount of related deposits increased from 26 billion yuan in 23 to 27.5 billion yuan.
Investment advice: The company is one of the leading aviation equipment in China. In recent years, the company's aviation defense equipment has accelerated iterative leapfrogging, and the integrated R&D, manufacturing/repair industrial layout has continued to deepen, and lean management has achieved remarkable results. We estimate that the company's net profit from 2024 to 2026 will be 3,689 billion yuan, 4.499 billion yuan, and 5.438 billion yuan. The current stock price corresponding to 2024-2026 PE is 27x/22x/18x. Maintain a “Recommended” rating.
Risk warning: order growth falls short of expectations; supply chain supporting management risks, etc.