Incident: The company released its 2023 annual report on April 29, achieving full year revenue of 450 million yuan, YoY +13.7%; net profit to mother of 130 million yuan, YoY +9.6%; net profit after deducting 100 million yuan, YoY -14.5%. The company's 23-year performance is within the scope of previous performance reports. The increase in revenue was mainly due to increased orders for the company's communications, aviation process equipment and other products. At the same time, the company released its 2024 quarterly report. 1Q24 achieved revenue of 40 million yuan, YoY +71.8%; net profit to mother of 4.05 million yuan, YoY -27.3%. The increase in 1Q24 revenue was mainly due to an increase in aviation process equipment revenue; the decline in net profit was mainly due to changes in product prices and structure, a decrease in gross margin, and an increase in management expenses and R&D expenses. The comprehensive review is as follows:
Due to changes in product structure and price reductions, the profit margin level has declined. Looking at a single quarter, 1) 4Q23 achieved revenue of 250 million yuan, YoY +4.1%; net profit to mother of 80 million yuan, YoY +9.0%. Gross margin was 46.7%, down 7.10ppt year on year; net margin was 35.3%, up 1.49ppt year on year. In 2023, the consolidated gross margin was 51.2%, a year-on-year decrease of 8.66ppt; the net margin was 30.3%, a year-on-year decrease of 1.65ppt. The company's comprehensive gross margin declined in '23 due to changes in product structure and lower downstream host or overall customer prices.
2) 1Q24 gross margin was 36.0%, a year-on-year decrease of 23.38ppt; net margin was 10.3%, a year-on-year decrease of 10.50ppt. Changes in product prices and structure may have a certain impact on profit margin levels.
R&D investment increased; inventory at the end of '23 increased 48% compared to the beginning of '23. On the cost side, the company's expense rate for the 2023 period was 20.8%, a year-on-year decrease of 2.12ppt. Among them: 1) the sales expense ratio was 2.4%, a year-on-year decrease of 0.20ppt; 2) the management expense ratio was 8.1%, a year-on-year decrease of 0.77ppt; 3) the R&D expense ratio was 10.5%, a year-on-year decrease of 0.70ppt; and R&D expenses were 50 million yuan, an increase of 6.6% year-on-year. As of the end of 4Q23, the company:
1) Accounts receivable and notes of $380 million, up 44.1% from the beginning of the year, mainly affected by changes in contract settlement; 2) Inventory of 130 million yuan, up 48.4% from the beginning of the year, mainly an increase in raw materials and products; 3) Net cash flow from operating activities of 40 million yuan, a year-on-year decrease of 63%, mainly due to the increase in communications products and aerospace process equipment tasks with high material costs, increased prepaid materials and inventory, and increased purchaser-side capital expenditure.
The subsidiary Feiyu won a large C929 order (175 million yuan); the large aircraft industry is booming.
On April 3, 2024, the company announced that its subsidiary Feiyu won the bid for the “C929 Project Composite Tooling Framework Agreement Project”, with a total order amount of no more than 175 million yuan. In addition, Air China and China Southern Airlines have recently announced plans to purchase orders for 100 C919 aircraft each, and the large aircraft industry is booming. The company has completed the design and manufacture of airframe, wing, flat tail, and tail tooling for the ARJ21, C919, C929 and various types of aircraft to achieve import substitution of key tooling. It is expected that the future will benefit deeply from the accelerated development of the large aircraft industry.
Investment suggestions: The company has been deeply involved in the aerospace field for 20 years and is a national-level “little giant” with expertise and innovation.
Benefiting from the accelerated release of demand in China's aviation equipment, drones, and large aircraft markets, as well as medium- to long-term development space for the satellite Internet industry, the company's performance will be flexible or high in the next few years. According to changes in the pace of downstream demand, we adjusted the company's net profit from 2024 to 2026 to 188 million yuan, 261 million yuan, and 364 million yuan. The current stock price corresponding to 2024-2026 PE is 45x/33x/23x. Maintain a “Recommended” rating.
Risk warning: downstream demand falls short of expectations; risk of product price reduction, etc.