Optimistic that “data element ×” will drive the company's revenue growth to gradually recover, Aerospace Hongtu released an annual report. In 2023, it achieved revenue of 1,819 billion yuan (yoy -25.98%), net profit of 374 million yuan (yoy -241.72%), and deducted non-net profit of 454 million yuan (yoy -304.78%). Among them, Q4 achieved revenue of 232 million yuan (yoy -78.18%, qoq -58.72%) and net profit to mother of 334 million yuan (yoy -283.99%, qoq -549.63%). In 2023, the company's revenue and net profit declined year-on-year, mainly due to pressure from the macroeconomic environment and the suspension of the company's bidding qualifications on the military procurement network. Taking into account the delay in customer procurement pace and lowering the profit forecast, the company's 24-26E EPS is expected to be 0.52, 1.21, and 2.36 yuan, respectively (previous value 24-25E 1.70 and 2.44 yuan). Considering that the company's large order was delivered or delayed until the release of 25E, the company was given 25E 23.5x PE on the basis that the comparable company 25E Wind agreed to have an average PE value of 23.5x, with a target price of 28.48 yuan (previous value of 54.44 yuan), and a “purchase”.

Delays in the pace of downstream bidding and acceptance have dragged down the main business. It is expected to gradually pick up in business in 2023. The company's data analysis application service business revenue was 1,048 million yuan, -29.27% year over year; system design and development business revenue was 752 million yuan, -22.11% year over year; and revenue from own software sales business was 19.24 million yuan, +82.16% year over year. The year-on-year decline in the company's data analysis and system design business in 2023 was mainly affected by the macroeconomic environment and the suspension of the company's bidding qualifications on the military procurement network. The bidding process for some projects was delayed, and the amount of new orders signed by the company declined; at the same time, due to delays in acceptance of some projects, the company's revenue declined year on year. We believe that with the restoration of the company's bidding qualifications and the advancement of downstream customer delivery, the 2024 revenue growth rate is expected to gradually reach an inflection point.

The large model empowers “AI+ remote sensing”, and continued investment in R&D is expected to increase product strength. The company's sales/management/R&D expenses rate in 2023 is 14.49%/15.26%/21.03%, +4.85pct/+4.46pct/+9.00pct compared to the previous year. Among them, the company's R&D expenditure rate increased a lot over the same period last year, mainly due to the company's continuous increase in R&D investment in new technologies such as smart Earth, artificial intelligence, and intelligent computing in orbit on the planet. In May 2023, the company launched the “Tianquan” visual model, which targets multi-modal remote sensing data, realizes sample labeling and model generalization under the “AI+ Remote Sensing” model, and is used to analyze weather phenomena, meteorological disasters, etc. We believe that the company continues to increase investment in R&D, product strength continues to improve, and market competitiveness is expected to be further strengthened.

The “Data Factor ×” initiative is expected to accelerate the commercialization process of the company's data assets. According to the Chinese Government Network, in December 2023, the National Development and Reform Commission issued the “Data Element ×” three-year action plan (2024-2026) (draft for comments), selecting 12 industries including emergency management and meteorological services to promote the multiplier effect of data elements, and strive to increase the average annual growth rate of the data industry by more than 20% and the scale of data transactions by 1 times in 2026. Meanwhile, the company has an integrated “sky and earth” data system, and is gradually forming intelligent industry applications based on the integration of multiple data sources such as remote sensing data. We believe that the commercialization process of the company's data assets is expected to accelerate as the “data element ×” campaign gradually unfolds.

Risk warning: Downstream demand falls short of expectations, and product development falls short of expectations.