Incident: On April 24, the company released its 2023 annual report, achieving annual revenue of 1.05 billion yuan, YoY +15.8%; net profit to mother of 50 million yuan, YoY +263.2%. At the same time, the 2024 quarterly report was released. 1Q24 achieved revenue of 270 million yuan, YoY +16.9%; net profit to mother of 0.3 billion yuan, YoY +102.3%. The performance was in line with market expectations. The high-end core equipment development and support business has entered a new stage of development.
4Q23 revenue increased 50% year over year; net profit turned loss year over year into profit. 1) Looking at a single quarter: The company achieved revenue of 320 million yuan in 4Q23, YoY +49.9%; net profit to mother of 0.14 million yuan, 4Q22 was -0.02 billion yuan; after deducting non-net profit of 205 million yuan, YoY -33.6%. From 3Q23 to 4Q23, the company achieved year-on-year losses for two consecutive quarters. 2) Profitability: In 2023, the company's gross margin decreased by 3.8 ppt to 36.5% year on year; net interest rate increased by 3.3 ppt to 3.5% year on year, the company's expenses rate decreased year on year, and net interest rate increased year on year.
Continuous construction of customer-converted goods production lines; strategic layout of eVTOL. By product, 2023:1) Aeronautical engineering technology and services: revenue of 760 million yuan, YoY +12.9%; gross margin increased 0.05ppt to 38.9% year-on-year.
In terms of attachments to the Ministry of Aviation, the company is promoting work related to large domestic aircraft to lay the foundation for continued growth in the future; in addition, Shanghai Hute has further increased its market share in East China and added maintenance production lines. In terms of civil aviation engineering technology and services, the company officially signed an Airbus freighter conversion agreement, becoming the world's first third-party modification company for the EFWA321 aircraft passenger conversion project. At the same time, we are actively developing high-quality overseas customers such as Southeast Asia, and overseas business accounts for more than 65% of revenue. Three additional passenger and cargo production lines are also under construction and are expected to be put into use in 2025. 2) High-end core equipment development and guarantee: revenue of 240 million yuan, YoY +25.7%; gross margin decreased by 11.92ppt to 27.7% year-on-year. The subsidiary Ansheng has carried out strategic cooperation with leading eVTOL companies, customized simulator R&D and manufacturing business, actively participated in industry standard setting, and co-authored and published the “New” Air Travel/Electric Vertical Takeoff and Landing Aircraft Pilot Training White Paper with leading companies in the industry.
The cost rate for the period decreased by 6.3ppt; 1Q24 contract liabilities increased 27%. The cost rate decreased by 6.3ppt to 28.0% year-on-year during 2023:1) the sales expense ratio increased by 0.1ppt to 1.5% year over year; 2) the management expense ratio decreased by 3.5ppt to 14.9% year over year; 3) the financial expense ratio was 7.8%, compared to 8.4% in the same period last year; 4) the R&D expense ratio decreased by 2.4ppt to 3.8% year over year, and R&D expenses decreased by 28.2% to 40 billion yuan year over year, mainly due to the fact that some of the company's R&D projects met the capitalization conditions and were then capitalized. As of the end of 1Q24, the company:
1) Accounts receivable and notes of $640 million, up 6.6% from the beginning of the year; 2) Advance payments of $40 million, up 33.2% from the beginning of the year; 3) Inventory of $510 million, up 2.8% from the beginning of the year; 4) Contract liabilities amounted to $160 million, up 26.8% from the beginning of the year. Net cash flow from operating activities in 2023 was $340 million, YoY -29.3%.
Investment suggestions: The company's main business is high-end core equipment development and support, aeronautical engineering technology and service, and high-performance integrated circuit design and manufacturing to build the influence of the “Made in China, Created by Haite” core brand. We expect the company's net profit from 2024 to 2026 to be 80 million yuan, 100 million yuan, and 140 million yuan respectively. The current stock price corresponding to 2024-2026 PE is 95x/72x/55x, respectively. We maintain a “careful recommendation” rating considering the company's brand strength and strategic layout in the fields of large domestic aircraft, eVTOL, etc.
Risk warning: downstream demand falls short of expectations, product development progress falls short of expectations, etc.