The company disclosed the 2023 annual report and the 2024 quarterly report. In 2023, it achieved operating income of 2,412 billion yuan, +9.75% year over year, realized net profit of 305 million yuan, -24.50% year over year, and realized net profit of 280 million yuan after deduction, or +22.89% year over year. In the first quarter of 2024, the company achieved operating income of 662 million yuan, +9.07% year on year; realized net profit of 91 million yuan, +11.12% year over year; realized net profit of 90 million yuan after deduction, +29.05% year on year. The company's core profit has maintained steady growth. As the company's “two aircraft”, nuclear power, and low-altitude economy businesses continue to expand, performance is expected to maintain a high growth rate and maintain a “highly recommended” investment rating.

The company's net profit declined in 2023 due to non-recurring accounts, but core profit maintained steady growth. The company achieved operating income of 2,412 billion yuan in 2023, +9.75% year on year, realized net profit of 305 million yuan, -24.50% year on year, and realized net profit of 280 million yuan after deduction, or +22.89% year on year.

Core profit continued to grow steadily, and the decline in net profit to mother was mainly due to changes in asset disposal gains and losses and government subsidies. In terms of profitability, gross profit margin in 2023 was 36.17%, -0.55pct year on year; net profit margin was 11.54%, -5.94pct year on year; net profit margin after deduction was 11.61%, +1.24pct year on year.

By business, the “two-plane” business continues to grow rapidly. In 2023, high-end equipment components achieved revenue of 1,171 billion yuan, with a gross profit margin of 30.76%, and +0.10pct; new nuclear materials and components achieved revenue of 380 million yuan, +16.66% year over year, gross profit margin of 40.10%, -0.08pct year on year; new aerospace materials and components achieved revenue of 788 million yuan, +25.82% year on year, gross profit margin of 41.91% year on year, -3.70 pct year on year.

Cost optimization is progressing steadily. The company's expense ratio for the 2023 period was 25.95%, -0.74pct year-on-year. Among them, the sales expense ratio was 1.39%, -0.23pct; the management expense ratio was 7.97%, -0.42pct; the financial expense ratio was 4.43%, -0.65pct year on year, mainly benefiting from the optimization of the debt structure and the decline in interest rates; and the R&D expense ratio was 12.16%, +0.56pct year on year.

2024Q1 maintained a relatively rapid increase in core profit. The company achieved revenue of 662 million yuan in 2024Q1, +9.07% year over year; realized net profit of 91 million yuan, +11.12% year over year; realized net profit of 90 million yuan after deduction, +29.05% year over year.

The “two-engine” business continues to expand, and breakthroughs in nuclear power and nuclear power continue. In the field of combustion engines, the company achieved key breakthroughs with various models, with a new order amount exceeding 600 million yuan. Among them, it was the first to pass the inspection and batch delivery of new products with Class 1, 2, and 3 directional hollow turbine blades from the national “Two Engine Project”, providing a strong guarantee for the smooth launch of 300MW heavy gas turbines; the company also signed strategic agreements with international gas engine leaders, and the order amount reached a new high. In the aviation development sector, the company supplies a certain type of aero engine chassis to Company G accounting for more than 50% of the global market share, and orders roll over until 2026; continue to deliver domestic aero engine blades in batches for a group, while also developing other types of blades and achieving the first set of deliveries; the company also delivers chassis, blades, etc. for large domestic commercial aircraft engines. In the field of nuclear power, the National Standing Committee once again approved 10 nuclear power units in 2023, and the company has sufficient orders in hand. In the field of nuclear materials, the company successfully completed technological breakthroughs in neutron absorption materials and composite shielding materials. Through national industry assessments led by academicians, some key indicators surpassed Europe and America. Rigid and flexible shielding materials began to gain strength one after another, contributing new increases.

The company is also actively expanding the application field of nuclear energy materials, successfully developing three key core components and extreme environmental functional materials high boron steel and tungsten boron steel, and established a joint venture in the first quarter of 2024 to gradually achieve industrialization.

The low-altitude economy has made new progress. The company acquired German SBM in 2016, completed the introduction of two turboshaft engine technologies, and established Yingliu Aviation, which expanded from the field of “two-plane” hot-end components to the field of complete aero engines and supporting helicopters and drones. By the end of 2023, Yingliu Aviation had built 8 high-standard plants, R&D centers and supporting facilities; built an engine test center, 4 test benches have been put into use; and built engine assembly lines and drone assembly lines. Yingliu Aviation has thoroughly developed 100KW-300KW turboshaft engines and hybrid packs below 400KW, taking into account pre-research on high-horsepower turboshaft engines. At present, the YLWZ-130/190 has completed localized development and small-batch production; the first YLWZ-300 was delivered in the first quarter of 2024; the 120KW and 275KW hybrid packs target the drone freight, extended-range electric truck, and emergency rescue markets, and have been recognized by target customers. The company has completed the development of unmanned helicopters with a take-off weight of 270 kg and a take-off weight of 1000 kg. In 2024, it will focus on completing the development and product certification of drones with a take-off weight of 600 kg.

Maintain a “Highly Recommended” investment rating. Yingliu Co., Ltd. is a core supplier of “two engines”, nuclear energy, nuclear power, and low-altitude economy. We believe that in the next three years, the company will benefit from low cost advantages and domestic engine replacement in the field of aviation development, from breakthroughs in overseas demand+ domestic heavy gas turbines in the field of gas turbines; from the increase in the number of nuclear power plants under construction and nuclear material emissions in the field of nuclear energy and nuclear power; and from the increase in core components+aircraft operation+airport operation demand in the field of low-altitude economy, and the performance is expected to achieve stable and high growth. Considering the decline in the subsidy policy and the impact of military delivery, we lowered the company's 2024/2025/2026 revenue growth rate to 23%/21%/12%, respectively, and the net profit growth rate to mother of 43%/29%/14%, respectively, corresponding to PE of 23.6/18.4/16.1 times, maintaining the “Highly Recommended” investment rating.

Risk warning: The recovery of the aero engine market falls short of expectations, the localization of heavy gas turbines falls short of expectations, the progress of nuclear power approval and construction falls short of expectations, and the low-altitude economic development falls short of expectations.