① The main reason for the decline in drone revenue in China is affected by market demand. Due to the difference between the delivery structure and the same period last year, the overall gross margin declined, resulting in a year-on-year decline in net profit and net net profit after the meeting; ② In investor exchanges after the meeting, China Drone Management specifically addressed investors' questions about whether the military trade business is regular, how China Drones are boosting the civilian drone market, and the company's top ten shareholders reducing their holdings.
Editor's note:
From January 25 to 26, 2024, the China Securities Regulatory Commission held the 2024 System Work Conference and emphasized the need to highlight the investor-centered concept. In order to help investors better understand the true development situation and value of the enterprise and further protect the legitimate rights and interests of investors, etc., the Financial Federation and “Science and Technology Innovation Board Daily” jointly created the “Direct Access to Shareholders' Meeting” column.
The “Direct Shareholders' Meeting” column focuses on the long-term strategies, major decisions, management policies, etc. of the enterprise by confronting the chairman of the listed company and other core management at the shareholders' meeting in the form of a live report. The aim is to enhance the corporate capital market image, optimize investor relationship management, and improve the relevant governance and development of listed companies.
Current company: China Drone
▍ Company Profile
China Aviation (Chengdu) Drone Systems Co., Ltd. (Stock abbreviation: China Drone), a subsidiary of the Aviation Industry Group, was founded in 2007 and is an overall solution provider focusing on the integration of large-scale fixed-wing long-flight drone systems into systems, multiple scenarios, and a full life span.
▍ Company Highlights
China Unmanned Aircraft has five complete drone system systems: technological innovation, manufacturing, service assurance, quality management, and flight test management. The company is mainly engaged in the design, development, manufacture, sales and service of medium altitude long-flight drone systems. Its drone products mainly include platforms such as Pterosaur-1, Pterosaur-1D, Pterosaur-1E, Pterosaur-2, Pterosaur-2D, Pterosaur-2H disaster relief and meteorology, and Pterosaur-3.
▍ Profit Model
China Drones focus on the development of the drone industry, focusing on both domestic and foreign markets, defense and civil use, and continue to enrich drone application scenarios and solutions. Drive scientific and technological innovation with market demand, target the four directions of “platform, application, intelligence and collaboration”, build an open and agile R&D capability system, and comprehensively enhance the core competitiveness of products.
“Science and Technology Innovation Board Daily”, April 23 (Reporter Huang Xiumei) The low-altitude economy is growing into a new engine of growth. As a listed company controlled by a central enterprise, China Drone focuses on large-scale fixed-wing long-flight time drone systems to develop the two major markets of defense and civil use. Recently, it has also received investors' attention due to the “low altitude economy” concept. In response, China Drone said, “The company pays great attention to the development of technology and products related to the low-altitude economy, and is developing various small and medium-sized drone products of 1 ton and below.”
China Drone's 2023 Annual Shareholders' Meeting was held at Huangtianba Chengdu Chengfei Conference Service Co., Ltd., in Qingyang District, Chengdu. This area is not only the location of Chengdu Aircraft Industry (Group) Co., Ltd. (that is, Aviation Industry Chengfei), but is also home to Chengfei Aeronautical Themed Education Base, Aviation Industry Chengfei Training Center, and Chengfei's various employee communities. It is an area with a strong aviation culture.
At this shareholders' meeting, in addition to four individual investors, China Drone Chairman Zhang Xiaojun, Vice Chairman/General Manager Zeng Qiang, Director Yang Ping, Chief Accountant Xu Junfang, China Aviation Industry Group Co., Ltd. Shareholder representatives, shareholder representatives of China Aviation Industry Corporation Chengdu Aircraft Design Research Institute, three independent directors, witness lawyers, and related staff attended.
At the meeting, shareholder representatives reviewed eight proposals, including the “Plan on the Work Report of the 2023 Board of Directors”, “Plan on the 2023 Financial Results Report”, “Proposal on the Company's “2023 Annual Report” and “Proposal on the Company's 2024 Financial Budget Report”. According to an announcement recently issued by the company, many of the above proposals have been passed.
(Site of China Drone's 2023 Annual Shareholders' Meeting, Source: China Drone)
(Site of China Drone's 2023 Annual Shareholders' Meeting, Source: “Science and Technology Innovation Board Daily”)
There is a certain fluctuation in market demand
The annual report shows that China Drone's revenue and net profit declined in 2023. The company's revenue in 2023 was 2,664 billion yuan, down 3.94% year on year; net profit to mother was 303 million yuan, down 18.27% year on year. The company stated in its annual report that the main reason for the decline in revenue was the impact of market demand, and due to differences between the delivery structure and the same period last year, overall gross margin declined, resulting in a year-on-year decline in net profit.
In response to the impact of changes in market demand in 2023, some individual investors asked at the conference. As a military state-owned enterprise, does China Drone have certain rules in its market business and whether there are certain rules in revenue recognition?
Zeng Qiang, vice chairman and general manager of China Drone, explained at the conference, “Company orders depend on the overall trend of market demand for business and products. If we judge fluctuations in market demand or even fluctuations in company performance over a month or year, there is actually no obvious regularity.”
“A comprehensive special aviation product is actually a large-scale complex system, which is also closely related to national aerospace policies, etc.” While communicating with investors after the meeting, Zeng Qiang added that order requirements need to be determined according to customer circumstances.
According to Zeng Qiang, “Different customers have different needs for the same product every year. Improving the functionality of aviation products is very complex and rigorous. In the process of responding to customer needs, there are also situations where customers put forward new demands. After all, the more advanced the large-scale drone platform, the more customers want to achieve multiple functions and applications.”
Zeng Qiang further explained, “This requires coordination between system functions and drone platforms, and coordination between customer needs and the company's business. The above process can also cause fluctuations in the company's performance, but these are all normal. The development of aviation products and electric vehicles is quite similar; it is a process of accumulation and then explosion.”
In an exchange with Zeng Qiang, investors also asked if the fierce competition in the global drone market will have an impact on the company?
Zeng Qiang replied, “The domestic and foreign drone market is large enough. Moreover, market competition is multi-dimensional. Products, performance, price, trust, and recognition are all considered by customers when choosing cooperation. China's medium and long flight time drone market is not one of these or the other competitive trends. China's drones are also leading products on a global scale, and there is no problem of global market saturation.”
Up to now, the Chinese Drone Pterosaur series drones have been exported to more than 10 countries and regions around the world.
Empowering the civilian drone market
In an exchange with investors after the meeting, Zeng Qiang said that the company will develop the civil market for industrial drones and the low-altitude economy. Currently, the company's civilian drone field mainly focuses on emergency rescue, meteorology, etc.
“In recent years, we have deeply felt the continuous increase in demand for large-scale fixed-wing long-flight drones in the industrial drone market. It is becoming increasingly clear in various areas such as man-made weather effects, meteorological detection, emergency rescue, forest fire prevention and fire extinguishing, exploration and inspection, and law enforcement and forensics.” Zeng Qiang said that the market for industrial drones is very large. The company is developing various small and medium-sized drone products below the 1-ton level, and continues to expand application scenarios.
On March 15 this year, a forest fire broke out in Baizi Village, Xiala Town, Yajiang County, Ganzi Prefecture, Sichuan Province. Due to the high winds at the fire, rescue work faced great difficulties. The Ministry of Emergency Management dispatched emergency reinforcements from the company's Pterosaur-2 drone to fully carry out emergency disaster relief tasks such as disaster reconnaissance and communication support.
“In the long run, drone systems will be integrated into all aspects of the military and the civilian sector. This trend is irreversible. China Drones are participating in the formulation of standards related to civilian drones. The company's drone system is applying for certification of airworthiness for civil aircraft. With the support of the General Administration of Civil Aviation, 296 special verification provisions have been formulated in accordance with CCAR-23 R3 related requirements.” Zeng Qiang said.
No notice of shareholders' holdings reduction plan has been received
During the exchange after the meeting, investors also asked Yang Ping, director of China Drone: “Do the top ten shareholders of the company have plans to reduce their holdings?” Yang Ping replied, “Up to now, the company has not received notification from shareholders about plans to reduce their holdings. Shareholders holding more than 5% of their holdings need to communicate with the company in advance, and the company is responsible for disclosing the information. The company actively maintains contact and communication with shareholders, and if there are matters that need to be disclosed, the company will promptly disclose the information.”
According to data, China Drone disclosed two partial restricted stock listing and circulation announcements on the evening of June 19, 2023 and the evening of March 15, 2024, respectively.
Chengdu Industrial Investment Group holds more than 55.62 million restricted shares of China Drone, accounting for 8.2403% of the company's total share capital. The ban on this part of the restricted shares was lifted on June 29, 2023. According to data disclosed in the annual report, as of December 31, 2023, Chengdu Industrial Investment Group still held more than 55.62 million shares of China Drone in circulation.
Chengdu Jianguo Automobile Trading Co., Ltd., China Industrial Investment Fund Co., Ltd., and Sichuan Tianfu Hongwei Industrial Development Equity Investment Fund Partnership (limited partnership) held 54 million shares, 13.5 million shares, and 13.5 million shares of China's drones, respectively, for a total of 81 million shares. The ban on the restricted shares mentioned above was lifted on March 22, 2024.