Event Overview:

On April 12, Aerospace Hongtu released the “2023 Annual Report”. In 2023, the company achieved total revenue of 1,819 billion yuan, a year-on-year decrease of -25.98%; net profit to mother was -374 million yuan, a year-on-year decrease of 241.51%; net profit after deducting non-return to mother was -454 million yuan, a year-on-year decrease of 304.41%.

Revenue fluctuated due to external factors, and is expected to resume growth in the revenue side in 2023. The company's revenue fluctuated and was concentrated in Q4. By business, the company achieved revenue of 232 million yuan in Q4, down 78.18% year on year. By business, the company's space infrastructure planning and construction revenue in 2023 was 154 million yuan (YoY -18.92%), PIE+ industry revenue was 1,588 million yuan (YoY -27.44%), and cloud service product line revenue was 77 million yuan (YoY -1.03%). All businesses have been affected to a certain extent, mainly due to 1) the concentration of the company's customers in the government, large state-owned enterprises and special fields. The bidding process for some projects was delayed due to pressure from the macroeconomic environment and the suspension of the company's bidding qualifications on the military procurement network; 2) the acceptance period for some projects was delayed. Considering that the company's bidding qualifications have now been restored and downstream fluctuating factors have gradually subsided, we believe that orders in special fields are expected to gradually resume in the future; in addition, the issuance of trillion treasury bonds, focusing on post-disaster reconstruction, flood control, natural disaster response capacity improvement, water conservancy, etc., is expected to boost the company's demand for orders in related fields, and revenue is expected to resume growth. On the profit side, there was a significant decline, mainly due to 1) gross margin falling to 35.92% from 48.05% in 2022. We believe it was mainly due to a mismatch between cost and revenue in confirmation time; 2) the decline in revenue and the rigidity of various expenses, which led to a reduction in the cost ratio base.

It won the bid for a billion-level order in South America, and overseas business is expected to accelerate development. In September 2023, the company signed an electromagnetic spectrum acquisition and monitoring system project contract with the Bolivian Telecommunications and Transportation Regulatory Authority, amounting to US$22.387 million. We believe that the project has two important meanings: 1) the company's first overseas order, which indicates that the company has a certain level of competitiveness in the international market and has achieved certain results in recent years; 2) the concrete expression of the company's business support from its own data, that is, strengthening the integration of the industrial chain through richer data resources, empowering the PIE+ industry and consolidating its competitive advantage in downstream applications.

According to the company's announcement, the company has now set up branches in Hong Kong, China, Australia, the United Kingdom, Switzerland, Thailand, Singapore, Cambodia, Laos, Romania, the United Arab Emirates, etc., and is implementing overseas projects in Thailand, Australia, Pakistan, Bangladesh, etc. We believe that with the gradual improvement of the company's overseas strategic layout and the accumulation of international project implementation experience, overseas business is expected to accelerate in the future.

Drone manufacturing+command and monitoring platform+application, layout of low-altitude economy business 1) The company currently has drone-related business: the company set up a drone company in Hunan in 2017 and built its own drone production line to form an integrated space-space holographic sensing system with complementary aviation and aerospace and ground-assistance. Furthermore, the company has independently developed a drone monitoring platform, which can enable real-time monitoring and management of drones to ensure the safe and efficient application of drones. Currently, the system has been built at the China Geological Survey, and applications such as drone disaster monitoring, inspection, and agricultural plant protection have been implemented in Hebi, Fuzhou, Suzhou, Jilin, Guangxi and other places. 2) In the future, the company will continue to lay out the field of low-altitude economy. Through the construction of low-altitude airspace management and low-altitude intelligent networking infrastructure, drone command centers, testing centers, general-purpose distributed drone airports, drone operation automation service applications, drone airspace planning and management solutions, and city map modeling, the company will build a scientific city-wide low-altitude airspace planning and design system, build a new infrastructure for the low-altitude digital intelligence economy, and open up a trillion-dollar low-altitude economy market.

Investment advice:

As a leading enterprise in the field of satellite remote sensing in China, Aerospace Hongtu has long benefited from the growing demand for satellite applications, and is expected to take advantage of the “PIE+ industry” platform-based advantages to continue to grow in performance. We expect the company's revenue for 2024-2026 to be 25.48/33.78/4.183 billion yuan, respectively, and net profit to mother of 1.77/3.27/492 million yuan, respectively, maintaining the buy-A investment rating. A 6-month target price of 27.2 yuan is given, which is equivalent to a dynamic price-earnings ratio of 40 times in 2024.

Risk warning:

The implementation of remote sensing industry policies fell short of expectations; the company's cloud service customer expansion fell short of expectations; the company's satellite construction progress fell short of expectations, and depreciation and amortization exceeded expectations.