Core views:
The company's revenue has been growing steadily for 23 years. The company released its annual report and achieved operating income of 2,889 million yuan in 2023, +10.94% year on year; net profit to mother was 199 million yuan, +8.39% year over year. 23Q4 achieved revenue of 926 million yuan in a single quarter, -1.94% year-on-year; realized net profit of 67 million yuan, or -38.8% year-on-year. The company's gross profit margin in '23 was 42.28%, +2.66pct year-on-year.
The release of a mandatory drone inspection policy is expected to bring about a new increase in market space. According to the Low Altitude Economy Watch public account, in December '23, the National Standardization Administration brought forward the implementation date of the main provisions of the national standard “Civil Unmanned Aircraft System Safety Requirements” to January 1, 2024. The requirements stipulate 17 mandatory technical requirements and corresponding test methods, which apply to micro, light and small civil drones below 25kg. The covered unmanned aerial vehicles account for more than 90% of the country's unmanned aerial vehicle stock. Currently, there are many types of small drones in China, and drone inspection space is expected to grow rapidly 24-25 years after the mandatory inspection requirements are implemented.
There is a high demand for airworthiness testing in eVTOL research and development, and third-party testing institutions are expected to benefit. eVTOL has broad application prospects. Combined with the intensive introduction of industrial policies by the government, new manufacturers are entering the market. It is expected that in the next few years, as new manufacturers enter the R&D and airworthiness stage, inspection demand will grow rapidly.
The company has rich aviation inspection experience+excellent reputation, building a moat for the company's brand. According to the company's official account, the company is deeply involved in the airworthiness testing of Ehang Smart EH216-S, undertaking environmental reliability tests and electromagnetic compatibility tests for device-level products of various systems such as flight control, airborne communication, power units, batteries, etc., to help Ehang obtain the world's first manned eVTOL model certification. As eVTOL models increase, testing demand continues to increase, and the company is expected to continue to benefit.
Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be RMB 3.01/4.11/518 billion, respectively. Referring to comparable companies, considering the company's aviation inspection advantages, the company was given 35xPE in 2024, corresponding to a reasonable value of 18.32 yuan/share, maintaining a “buy” rating.
Risk warning. The risk that credibility will be affected by adverse events, the risk of changes in policies and industry standards, the risk that downstream demand recovery falls short of expectations, and the impact of large macroeconomic fluctuations on demand.