Report summary

Incident: The company announced on April 22 that it will achieve revenue (5.860 billion yuan, +20.10%), net profit to mother (423 million yuan, +61.36%), net profit after deducting non-return net profit (228 million yuan, +19814.23%, reverse profit of 228 million yuan), gross profit margin (23.29%, +1.80pcts), and net profit margin (8.97%, +1.35pcts) in 2023.

In 2024, Q1 achieved revenue ($1,896 million, +70.14%), net profit attributable to mother ($167 million, +295.34%), net profit net profit ($147 million, +43284.09%), gross profit margin (18.48%, -0.99pcts), and net profit margin (10.14%, +3.79pcts).

The company's revenue grew rapidly in 2023, and net profit to mother achieved rapid growth. The company's revenue grew rapidly in 2023 (5.860 billion yuan, +20.10%), mainly due to rapid revenue growth in the three major business segments of automotive parts, oil and gas equipment, and high-performance functional materials.

The gross profit margin (23.29%, +1.80pcts) increased. Net profit attributable to mother grew rapidly (423 million yuan, +61.36%), increased net interest rate (8.97%, +1.35pcts), mainly due to a decrease in the company's three-fee rate (7.33%, -0.28pcts), credit impairment losses (1.96 million yuan, a year-on-year decrease of 2.884 million yuan), and non-operating income (8.1554 million yuan, a year-on-year increase of 4.6894 million yuan).

In 2024, Q1's revenue (1,896 billion yuan, +70.14%) grew rapidly, mainly due to increased revenue from the auto parts business during the reporting period. The gross profit margin (18.48%, -0.99pcts) declined slightly.

Net profit attributable to the mother increased rapidly ($167 million, +295.34%), increased net interest rate (10.14%, +3.79pcts), mainly due to a decrease in the company's period expenses rate (8.25%, -4.64pcts), other income ($277.556 million, +204.27%), asset disposal income ($381,100, +1556.73%), and a sharp increase in non-operating income (989,200 yuan, +151.01%).

The business of the three major sectors continues to improve, and profitability has further improved

After completing the major asset restructuring during the reporting period, the company is currently mainly engaged in the three major businesses of automotive parts, oil and gas equipment, and high-performance functional materials.

① Auto parts business: In 2023, we achieved rapid revenue growth (5.084 billion yuan, +20.74%), accounting for 86.76% of revenue, and an increase in gross profit margin (18.69%, +2.16pcts). The company's auto parts business is carried out by its subsidiary Aerospace Molding. The net profit amount of the 2023 performance promise was 96 million yuan, and the realized amount was 236 million yuan (completion rate 243.94%). The net profit for the 2024-2025 performance commitment period reached 106 million yuan and 114 million yuan respectively.

The company's main products include automotive interior and exterior parts, lightweight engine parts, smart cockpit parts and molds. During the reporting period, the company provided parts for a total of 10.95 million vehicles (accounting for 42% of the country's total passenger car sales), while actively developing business in the field of new energy vehicles. It has successfully provided mass production support for various NEV models from mainstream automobile manufacturers such as Changan Automobile, Geely Automobile, GAC Aian, and BYD; it has successfully entered the supplier systems of many new car builders and carried out collaborative design of interior and exterior parts products. Some products have received mass production orders

② Oil and gas equipment business: Achieved rapid revenue growth in 2023 (580 million yuan, +15.24%), accounting for 9.90% of revenue and gross profit margin (58.22%, +0.37pcts). The oil and gas equipment business is mainly carried out by the subsidiary Aerospace Energy. The net profit amount of the 2023 performance commitment was 205 million yuan, and the realized amount was 216 million yuan (completion rate of 105.56%). The net profit for the 2024-2025 performance commitment period reached 226 million yuan and 238 million yuan respectively.

The main products cover drilling equipment, high-end completion equipment, and mechatronic control products. From product detonation, explosion transmission, drilling, increased production of explosives, end detection to seat sealing, underground electronic monitoring and control, etc., it has formed significant product serialization and systematization advantages. At the same time, a series of military blasting equipment products are being developed to broaden the scope of business. The domestic market share in the field of shale gas (oil) clustering and drilling equipment has reached more than 80%. The production capacity of detonators reached 3.55 million rounds, the capacity utilization rate was 95.66%, and the production capacity under construction was 800,000 rounds.

③ High-performance functional materials: Achieve rapid revenue growth in 2023 (196 million yuan, +18.77%), accounting for 3.34% of revenue and a gross profit margin of 39.10%.

The main products include magnetic strips, thermal magnetic tickets, automotive interior films, pressure test films, electromagnetic wave shielding films, light stabilizers, antioxidants, etc. At present, we have established stable cooperative relationships with leading companies in the electronics, semiconductor, and automotive fields such as BOE, Tianma Microelectronics, and BYD.

R&D investment reached a record high. In terms of the cost of speeding up preparation to meet downstream demand, during the reporting period, the company's cost control was good, and the three-fee rate (7.33%, -0.28pcts) declined. Among them, financial expenses (386.55,900 yuan, -29.26%) declined significantly, mainly due to interest capitalization being included in construction projects; R&D expenses (333 million yuan, +42.89%) and the number of R&D personnel (745 people, +20.94%) increased rapidly. Judging from the company's current R&D investment direction, it is mainly used for 6 high-performance materials R&D projects, 7 auto parts R&D projects, and 6 R&D projects such as completion and drilling in the oil and gas equipment field.

In terms of cash flow, the net cash flow from the company's operating activities ($838 million, +15.65%) grew rapidly, and net cash flow from investment activities (-224 million yuan, an increase of $37 million over the previous year). Net cash flow from fund-raising activities ($1,730 billion, an increase of $2.204 billion over the previous year) increased significantly, mainly due to capital raised by issuing shares to specific targets during the reporting period

In terms of other financial data, during the reporting period, the company's inventory (743 million yuan, +70.74% compared to the beginning of the period) grew rapidly year on year, advance payments (36 million yuan, +51.06%) grew rapidly, and accounts payable (1,391 billion yuan, +40.54% compared to the beginning of the period) remained at a high level. We judge that the company has sufficient orders or intended customer needs, and is currently actively preparing goods for production

Raise capital to increase investment in R&D, and special quality work and market value management requirements promote high-quality development

The company completed asset injection for aerospace energy and aerospace molding in August 2023, and completed the issuance of 179 million shares to 10 specific targets in November 2023, with an issuance price of 11.70 yuan/share, and raised a total capital of 210 billion yuan for shale gas development intelligent equipment upgrading projects, military blasting equipment production line automation upgrading projects, Sichuan Aerospace Energy Technology Co., Ltd. R&D center construction projects, automotive interior and exterior parts expansion projects, Chengdu Aerospace Molding Co., Ltd. R&D center and mold center construction projects and supplementary working capital. Judging from the construction progress of the project, by the end of 2023, the total amount of investment projects reached 1,086 billion yuan (investment progress 51.70%). The construction period of the project is 2-3 years, and after all are completed, the average annual net profit (after tax) of the overall operation period is expected to reach about 144 million yuan.

We believe that after the project is completed, it will provide a solid foundation for continued steady growth in the revenue scale of the company's three major business lines, and is also expected to further enhance the company's core competitiveness in the medium to long term. On the other hand, in April 2024, China Aerospace Science and Technology Group Co., Ltd. held a special promotion meeting on improving the quality of listed holding companies to comprehensively target the goals and requirements of the State Council's State-owned Assets Administration Commission's special work to improve the quality of listed companies controlled by central enterprises. In January 2024, the State Council's State-owned Assets Administration Commission clearly proposed that it will comprehensively implement market value management assessments for listed companies, “It will quantitatively evaluate the market performance of listed companies controlled by central enterprises and objectively evaluate the market value management efforts and results of enterprises.” The above policies and measures all help the company improve quality and efficiency. Promote high quality and best development

Investment advice

The company is a platform for listed companies of the Seventh Academy of Aerospace Science and Technology. After completing the major asset restructuring in 2023, it clarified the main lines of the “Aerospace +” and “Intelligent Manufacturing” industries, and has become a product and service provider with aerospace characteristics integrating the design and manufacture of automotive parts, oil and gas equipment and engineering, and R&D and application of high-performance functional materials. Our specific views and investment suggestions are as follows:

1) The company's revenue achieved rapid growth in 2023, and net profit to mother ushered in rapid growth. Overall, the company has now achieved rapid growth in all three business segments. Among them, the auto parts business accounted for the largest share of revenue (86.76% of revenue in 2023), while the oil and gas equipment business had the strongest profitability (58.22% gross margin in 2023).

2) In the long run, the auto parts business is expected to benefit from the rapid development of China's NEV industry, as well as breakthroughs in upgrading the company's product structure, developing key customers, winning bids for bright models, and core technology research and development to further enhance profitability.

3) The company has deep technical and R&D advantages in the field of oil and gas equipment, and is expected to further combine its advantages in industrial integration, customer resources, management and brand to build the company's core profit growth point

4) In terms of high-performance functional materials, with the development of consumer electronics, automotive electronics, and 5G communications, functional materials are widely used in the production and testing of components such as LCD panels and flexible circuit boards, as well as giving full play to industrial synergies with the automotive interior and exterior parts business sector. Performance is expected to continue to improve

5) The company is actively increasing investment in R&D. Judging from the fund-raising situation, it mainly focuses on the transformation of intelligent equipment for shale gas development, automated upgrading of military blasting equipment production lines, construction of aerospace energy R&D centers, and molding product development. The company is expected to further enhance the company's overall profitability by expanding production and capacity, increasing the profitability of the auto parts business and revenue volume in the oil and gas equipment sector.

6) The promotion of the Aerospace Science and Technology Group's work to improve the quality of listed companies and the State Council's State-owned Assets Administration Commission's clear and comprehensive implementation of the market value management assessment incident for listed companies will all help the company improve quality and efficiency and promote high-quality development

Based on the above views, we expect the company's revenue for 2024-2026 to be $6.479 billion, $7.296 billion and $8.211 billion respectively, with net profit of $475 million, $544 million and $624 million respectively, and EPS of 0.56 yuan, 0.64 yuan, and 0.74 yuan respectively. We gave a purchase rating. The target price was 2,400 yuan, corresponding to 39 times, 34 times and 30 times PE risk alerts, respectively

Project construction progress falls short of expectations; downstream demand falls short of expectations; upstream raw material costs fluctuate