Incident: The company released 23 annual reports, achieving revenue of 954 million yuan (-4.39%) and net profit of 217 million yuan (-30.95%) to mother. The company released its quarterly report for '24, achieving revenue of 240 million yuan (-23.71%) and net profit of 73 million yuan (-45.63%) to mother.

Changes in product structure, price reductions in testing services, and impairment of accounts receivable affected the company's 23-year performance. By business: the company's aircraft braking system and wheel revenue in '23 was 414 million yuan (+1.18%), gross profit margin 63.98% (+3.75pct); brake discs were 192 million yuan (+42.94%), gross profit margin 51.92% (-34.01pct); inspection tests amounted to 327 million yuan (-25.73%), gross profit margin 60.06% (-9.44pct). Due to the increase in the share of the civil aviation business with low gross margin and the decrease in the inspection prices of some tests in Beijing and Hanyu, the company's comprehensive gross margin decreased by 7.43 pct to 59.78%. The company's cost rate for the period was 20.65%, an increase of 2.44pct over the previous year. In addition, the company's credit impairment losses accrued on accounts receivable also increased during the reporting period, so the profit side's performance was weaker than the revenue side.

The company has sufficient production and inventory, and the net operating cash flow changed from negative to positive. The company's inventory at the end of 23 million yuan at the end of the year was 720 million yuan, an increase of 32.40% over the same period last year, and the company had sufficient production reserves. The company's 23 million yuan of construction projects at the end of the year was 111 million yuan, an increase of 84.34% over the same period last year, mainly because the company increased investment in projects such as resistance chemical vapor deposition furnaces and internal gas composition analyzers during the reporting period. The company's net operating cash flow in '23 was 210 million yuan, a significant improvement over -145 million yuan in the same period last year. This was mainly due to an increase in sales refunds for the current period, and the subsidiary Jing Han Yu enjoyed preferential policies for high-tech enterprises in 2023 and related tax rebates in 2022.

The company actively optimizes its business layout, develops new products and develops new markets. In terms of brake discs, the company is actively developing new civil aviation customers. The civil aviation brake disc business has achieved rapid growth, and the second growth curve is being formed at an accelerated pace.

In terms of engine wheels, the main wheel condition assessment for a certain type of aircraft of the company has entered mass production, and several types of wheels have been installed. Brake control systems, wheel temperature and pressure, and cooling devices have been extended to more models. In terms of landing gear, the company's various types of landing gear products have reached important application points and entered the scientific research or small-batch production stage. At the same time, the company holds Sun's subsidiary, and the surface treatment production line for large military and civilian aircraft landing gear in Tianjin Quanshun has been officially put into operation.

According to the annual report for the year 23, considering that the revenue and gross margin of the braking and inspection business fell short of expectations, the company's net profit for 24 and 25 years was adjusted to be 3.04 billion yuan and 356 million yuan (previous values were 6.82 million yuan and 882 million yuan), and the net profit returned to mother for 26 years was added. Based on the comparable company's price-earnings ratio of 28 times in 24 years, a target price of 25.76 yuan was given, maintaining the purchase rating.

Risk warning

Confirmation of military product packaging and replacement demand or order revenue falls short of market expectations; civilian goods market development progress falls short of market expectations; risk of falling military procurement prices; risk of accounts receivable