Incidents:

On April 3, 2024, Guangdong Yuecai Financial Leasing Co., Ltd. issued a weather radar equipment procurement project notice to purchase 35 X-band dual-polarized phased array weather radars.

Investment highlights:

The tender for meteorological and water radars continues to be released. A new round of tenders for weather radars in Guangdong Province has begun, with the first batch of 35 units. (1) Meteorological radar business aspects: On April 3, 2024, Guangdong Yuecai Financial Leasing Co., Ltd. plans to purchase 35 X-band dual-polarized phased array weather radars. As early as January 2024, the Guangdong Development and Reform Commission's official website announced the construction goals of 69 X-band dual-polarized phased array weather radars in Guangdong Province, and plans to complete them within 30 months; (2) Water radar business:

Many parts of the country, including but not limited to Beijing, Hunan, Shandong, Guangxi and other regions, have begun tenders for water conservancy projects to promote the construction of rain measurement radars. Among them, the total value of the 3 rain radar units tendered by Beijing Hydrological Station was completed on February 27, 2024, and the total value of 208.866 million yuan was completed and won by Narui Radar. Trillion-dollar treasury bonds support the continued progress of disaster prevention and water infrastructure construction, and large-scale meteorological and water radar tenders are expected to continue to be released.

The construction of a low-altitude traffic management system is a prerequisite for achieving mass low-altitude flights; the Civil Aviation Administration supports the construction of a low-altitude economic industry demonstration zone in Shenzhen, and the “New Deal” for general aviation equipment promotes the development of the low-altitude economy industry. On March 27, (1) the Civil Aviation Administration of China clearly supported Shenzhen in building a comprehensive demonstration zone for the low-altitude economy industry, and agreed to carry out research pilot projects on low-altitude logistics and urban air traffic; (2) four ministries and commissions, including the Ministry of Industry and Information Technology, the Ministry of Science and Technology, the Ministry of Finance, and the Civil Aviation Administration, jointly issued the “Implementation Plan for Innovative Application of General Aviation Equipment”, which proposed the goal of achieving large-scale application of logistics distribution and commercial operation in urban air traffic by 2027, and achieving the goal of fully integrating general aviation equipment into all fields of people's production and life and forming a trillion-level market size by 2030. In the future, the number of low-altitude aircraft is expected to be comparable to the number of terrestrial means of transportation or far greater than ultra-high altitude aircraft; similar to ground traffic and high-altitude traffic, the management of low-altitude traffic requires transportation infrastructure construction, and the formation of basic capabilities for low-altitude traffic management is a necessary prerequisite for large-scale high-density heterogeneous commercial flight activities at low altitudes in the future.

Narui Radar's traditional main business is waiting for business expansion to expand the company's new growth direction for the “low-altitude economy” reserve technology. (1) In terms of low-altitude economy: On November 16, 2023, Zhuhai established the first domestic low-altitude economic industry alliance. Leaders of Zhuhai City awarded the license to the chairman unit (Narui Radar) of the Low-altitude Economic Industry Alliance. The company's self-developed fully polarized multi-function phased array radar is dedicated to solving problems such as air traffic control meteorological warning, “low slow and small” flying object monitoring and warning, and active aircraft detection, recognition and tracking, to reserve technology for the “low altitude economy”. Compared to meteorological detection, low-altitude three-dimensional traffic construction may deploy encrypted radars to drive radar monitoring and sensing construction requirements. (2) In terms of traditional main business: The company achieved operating income of 212 million yuan, +1.18% over the same period, and achieved net profit of 65 million yuan, or -38.82%; in 2023, the company's orders were stable, R&D investment continued to grow, new market development led to an increase in sales expenses, a slight decline in the company's gross margin, a decrease in other income (government subsidies), and the repayment of accounts receivable was slightly delayed, leading to an increase in bad debt preparation; the company is expected to be officially put into operation in 2024Q2 in accordance with industry demand. We think the company's 2023 performance confirmation has run out of steam, and we are waiting to expand the business in 2024.

Profit forecast and investment rating: According to the current development situation of the industry, we adjusted the profit forecast. The company's revenue for 2023-2025 is estimated to be RMB 2.12/652/ 11.31 billion yuan, with year-on-year growth rates of 1%/207%/73%, respectively, and net profit to mother of 0.65/2.48/ 465 million yuan, respectively, and year-on-year growth rates of -39%/283%/87%, respectively. Corresponding to the 2023-2025 PE of 126/33/18 times, respectively, the company is expected to continue to benefit from the accelerated penetration rate and product technology iteration of X-band and C-band dual-polarized active phased array radars in the meteorological field. At the same time, breakthroughs are expected in new fields such as water conservancy, civil aviation, military, and low-altitude economy; the company's core technical barriers are deep, and we believe it has the potential for long-term growth and maintain a “buy” rating.

Risk warning: Market space is more dependent on industry policies and budgets at all levels; industry competition is intensifying; product forms are too uniform; high gross margins are difficult to maintain; customer concentration is high; progress or operating results of fund-raising projects fall short of expectations; low-altitude economic development falls short of expectations.