Incident: The company released its 2023 annual and 2024Q1 quarterly reports. In 2023, the company achieved operating income of 2,412 billion yuan (YoY +9.75%), net profit attributable to mother of 303 million yuan (YoY -24.50%), and net profit of 280 million yuan (YoY +22.88%). 2024Q1, the company's revenue was 662 million yuan (+9.07% YoY), and net profit to mother was 91 million yuan (+11.12% YoY).

The “two-engine” business order achieved a breakthrough and continued to explore the advantages of the entire industry chain: in 2023, in the fuel turbine sector, the company achieved key breakthroughs in various models in the gas turbine business, and the amount of new orders exceeded 600 million yuan. In the aero engine sector, there are plenty of orders on hand for blades and locks. In terms of industrial chain expansion, the company's high temperature alloy category basically meets current master alloy grade requirements; localization of ceramic cores helps accelerate the development of key models; and the “two-machine” hot-end component processing and thermal barrier coating production line is expected to be put into operation in 2024.

Accelerated delivery of nuclear power business orders, increased application expansion contributions: In 2023, the State Council approved a total of 10 nuclear power units. The pace of approval is expected to continue in the future, and the company's nuclear power business orders are delivered faster. On the incremental side, rigid and flexible shielding materials began to gain strength one after another, contributing new increases. The company successfully developed three products for use in nuclear fusion reactors, established a joint venture in the first quarter of 2024, and began gradual industrialization.

Complete aircraft development has entered a new stage, and drone products have opened up a new channel: Production line construction: By the end of 2023, the company had built a R&D center, engine test center, assembly line, and drone assembly line. Complete engine: The first YLWZ-300 was delivered in the first quarter of 2024. In terms of drones, the company has completed the development of unmanned helicopters with a take-off weight of 270 kg and 1000 kg in 2023. It is expected to focus on completing the R&D and product certification of 600 kg drones in 2024, which will open up new growth space for the company.

Investment suggestions: The company's two-engine business continues to prosper, the nuclear power business has sufficient orders and is increasing, and complete engine and drone products will be released one after another. We expect the company to achieve operating income of 26.52/30.82/3.55 billion yuan in 2024-2026, net profit to mother of 437/6.08/734 million yuan, respectively, and corresponding PE 21.28/15.30/12.67 times, respectively. Maintain an “Overweight” rating.

Risk warning: risk of falling demand, risk of export trade, risk of exchange rate fluctuations, risk of new business progress falling short of expectations.