Event: On March 14, the company released its 2023 annual report. During the reporting period, the company achieved total revenue of 2,663 billion yuan, a year-on-year decrease of 3.94%; net profit attributable to shareholders of the parent company was 305 million yuan, a year-on-year decrease of 18.27%. Basic earnings per share were 0.45 yuan/share, down 26.23% year on year. Market demand affected the short-term pressure on the profit side. The company achieved revenue of 2.66 billion yuan in 2023, down 3.94% from the same period last year, mainly due to market demand, which led to a slight decrease in revenue compared to the same period last year. The company achieved net profit attributable to shareholders of listed companies of 303 million yuan, down 18.27% from the same period last year. The main reason was that the revenue scale in 2023 decreased compared to the same period of the previous year, and overall gross margin declined due to differences in the structure of products delivered from the same period last year, leading to a decrease in net profit for this year and net profit attributable to shareholders of listed companies after deducting non-recurring profits and losses compared to the same period last year. The company's net cash flow from operating activities in 2023 was 117 million yuan, down 68.87% from 377 million yuan in the same period last year. It was mainly affected by settlement nodes agreed in the contract, which led to a decrease in net cash flow from operating activities compared to the previous year.

The company's total assets at the end of December 2023 were 7.36 billion yuan, down 5.70% from the balance at the beginning of the period, mainly due to changes in corporate assets and liabilities due to daily operations. The company's basic earnings per share in 2023 were 0.45 yuan, a decrease of 26.23% from the previous year, diluted earnings of 0.45 yuan, a decrease of 26.23% from the previous year. After deducting non-recurring profit and loss, the basic earnings per share were 0.42 yuan, a decrease of 30.00% from the previous year. Mainly, the company's public offering of shares in June 2022 led to a sharp increase in the number of shares. Coupled with a year-on-year decrease in net profit for the year, the basic earnings per share during the reporting period, diluted earnings per share, and basic earnings per share after deducting non-recurring profit and loss all declined compared to the previous year.

The revenue costs of the main business have changed, and revenue has declined slightly. During the reporting period, aerospace product manufacturing and related services were the main source of the company's main business revenue, down 3.94% from the previous year, accounting for 100.00% of main business revenue. The gross margin decreased by 5.32 percentage points, mainly affected by market demand, and the gross margin of comprehensive product sales declined this year due to differences in product delivery structures. During the reporting period, the company's drone systems, related products, and drone technology services achieved main business revenue of 255,80414 million yuan and 10,59,193 million yuan respectively, down 6.24% and 136.37% from the previous year.

Due to significant changes in the composition of this year's project compared to the previous year, the gross margins of drone systems and related products and drone technical services decreased by 5.98% and 0.04%, respectively, compared to the previous year. During the reporting period, the company's main business was domestic revenue, down 3.94% year on year. The product delivery structure was different, and the gross margin of comprehensive product sales decreased 5.32 percentage points over the same period last year. During the reporting period, the company's sales model was mainly direct sales. Affected by market demand, revenue declined.

The core technology is leading, and the company's independent innovation continues to improve. The company aims to enhance independent innovation, product competitiveness, industrial chain control and industry leadership, strategically focuses on product innovation, assembly integration and customer service, continuously strengthens cutting-edge aviation technology exploration capabilities, complex aviation system integration capabilities, efficient supply chain integration capabilities, and integrated comprehensive support capabilities, continuously consolidates the technical advantages and leading capabilities of drone equipment system main integrators, and is committed to becoming a leading domestic and world-class drone specialized company. The Pterosaur series drone system products developed and produced by the company and their related technologies have successively won the first, second, and third prizes of the National Defense Science and Technology Progress Award, and won the 5th China Industry Awards Commendation Award. During the reporting period, the Pterosaur-1E drone, the Pterosaur-2D drone, and the new command and control station completed scientific research and verification, and Pterosaur-3 development progressed in an orderly manner, adding another strength to the company's competition for domestic and foreign markets. The company focuses on the design and development, manufacturing, sales and service of drone systems, and is committed to promoting the development of China's drone industry with advanced products and technology. The company attaches great importance to product technology research and development. At present, it has accumulated and mastered 25 core technologies in large-scale fixed-wing long-flight drone platform design technology, large-scale fixed-wing long-flight drone system design technology, intelligent autonomous drone and intelligent charging technology, integrated drone manufacturing technology, drone testing technology, and drone systematic support technology. As of December 31, 2023, the company has 65 authorized patents, including 36 invention patents, 25 utility models, and 4 design patents. During the reporting period, the company applied for 36 new invention patents, 3 utility models, and 1 design.

Investment advice: The company focuses on the design, development, manufacturing, sales and service of drone systems, and is committed to promoting the development of China's drone industry with advanced products and technology. According to model estimates, net profit due to mother from 2024 to 2026 is estimated to be 382, 4.47 million yuan, and 544 million yuan, EPS 0.57, 0.66, and 0.81 yuan, respectively, and the corresponding P/E is 69.0, 58.9, and 48.4 times, respectively. Give it an “gain” rating.

Risk warning: risk of changes in downstream market demand; risk of market competition; management risk due to expansion of business scale; management of accounts receivable and risk of bad debts.