Incident: The company released its 2023 annual report. In 2023, it achieved revenue of 40.301 billion yuan, +7.01% year-on-year, and net profit to mother of 861 million yuan, +64.41% year-on-year.

Key points of investment

Revenue increased steadily, and profit side improved markedly. In 2023, revenue was 40.301 billion yuan, up 7.01% year on year. Of these, 2023Q4 achieved revenue of 11.888 billion yuan, an increase of 27.63% year on year. The company completed order delivery on time, and revenue grew steadily. On the profit side, the gross profit margin in 2023 was 6.87%, a slight decrease from last year's gross margin. In 2023, the company's cost reduction and efficiency measures continued to advance, and the cost ratio decreased during the period. Among them, the R&D expenses ratio was 0.60%, the management expense ratio was 2.26%, and the sales expenses ratio was 1.18%. The overall cost ratio improved significantly. The net profit margin on sales in 2023 was 2.14%, and the company's profitability improved significantly. In 2023, net cash flow from operating activities was 5.515 billion yuan, mainly due to a decrease in cash received from sales of products compared to the same period last year.

A restricted stock incentive plan was released for the first time to open up the international subcontract market and increase order reserves. The company launched a ten-year stock incentive program in November 2022. In February 2023, the company completed the first phase of restricted stock incentives, awarding a total of 13.095 million shares to 261 employees. This move is expected to motivate senior management and key talents and drive the company's performance to continue to grow rapidly. The company continues to enhance its integrated manufacturing capabilities for key components such as airframes and wings, and has successfully completed the production and delivery tasks of major components for C919, ARJ21, AG600, and Xinzhou series aircraft. At the same time, the company has continuously improved the internal and external supply chain, accelerated the development of the international subcontract market, increased order reserves, improved refined operation capabilities in international cooperation projects, and successfully achieved on-time delivery of the ATR42 short take-off and landing project and the Airbus A320 series project.

The only main engine manufacturer for large aircraft in the entire spectrum, anchoring the long-term development of the industry. As an important mainframe manufacturer of China Aviation Industry focusing on large and medium-sized military aircraft, the company plays an important role in promoting the strategic transformation of the Chinese Air Force. The successful development and deployment of the Yun-20 has significantly enhanced the Chinese Air Force's long-range delivery capability, while the continuous improvement of the Bomb-6 bomber has ensured the central position of the Air Force's bombing power. In the field of civil aircraft, as the main supplier of airframe structures for large C919 airliners, the C919 has already ordered more than 1,000 aircraft, and is on the verge of releasing domestic civil aircraft. It is expected to benefit from in-depth support for commercial aircraft in the future.

Xifei focuses on large and medium-sized aircraft. In terms of complete aircraft business, it is currently the only domestic manufacturer of military transport aircraft and bombers.

Profit forecast and investment rating: The company's performance is in line with expectations. Considering that the industry is in the order adjustment period, based on the company's leading position in the aircraft industry, we slightly lowered the company's 2024-2025 net profit forecast to 11.52/1,513 billion yuan (previous value: 15.05/1,975 billion yuan), and added the 2026 net profit forecast value of 1,848 billion yuan, corresponding to PE, maintaining a “buy” rating of 52/39/32 times, respectively.

Risk warning: 1) production and operation risk; 2) military business fluctuation risk; 3) risk of new equipment development falling short of expectations.