Event: The company announced on April 24 that 2024Q1 achieved revenue (240 million yuan, -23.71%), net profit to mother (73 million yuan, -45.63% year on year), gross profit margin (62.63%, -7.22pcts), net profit margin (37.349% 6, -13.06 pcts year on year), net profit margin (954 million yuan, 4.39% 6), net profit margin (59.78%, -7.42pcts), net profit margin (59.78%, -7.42pcts), net profit margin (59.78%, -7.42pcts) 26.82%, -12.90pcts).

An important supplier of military aircraft braking systems. The company is mainly engaged in landing gear landing gear systems and brake products for military and civilian aerospace vehicles. The main products include aircraft brake control systems, wheels, brake discs (auxiliary), landing gear, and inspection tests. Currently, the company's main revenue comes from military products. The products are widely used in key military equipment such as fighters, bombers, transport aircraft, trainers, military trade aircraft, helicopters, and space high-altitude aircraft, and the scope of services covers the five major war zones. The civil aviation market has been vigorously expanded in recent years, and the civil aviation business is growing rapidly year on year, and will become an important part of the company's business in the future.

Revenue has declined due to a drop in test prices, and the landing gear business is expected to become a new performance growth point. The company's revenue (954 million yuan, 4.39% 6) declined in 2023, mainly due to a decrease in the testing pricing of some of its subsidiary Jinghanyu. Looking at the parent company of Beimo Hi-Tech alone, revenue (615 million yuan, +11.82%) maintained a steady growth trend; the decline in net profit to the mother (217 million yuan, -30.95%) was mainly affected by a combination of the following factors: 1. The increase in the share of civil aviation business with relatively low gross margin led to changes in the company's product structure, 2. Credit impairment losses accrued in accounts receivable (-118 million yuan, +164.28%) increased. 3. The test price of Jinghan Yu declined, while rent, equipment depreciation and personnel investment increased sharply; gross profit margin (59.78%, 7.42pcts). Net profit margins (26.82%, -12.90pcts) all declined.

2023 by product area:

① Aircraft brake control systems and wheels, revenue (414 million yuan, +1.1896) increased slightly, mainly due to the company's aircraft main wheel condition assessment and mass production. If 1000 models of wheels achieved steady growth in installed gross profit margin (63.98%, +3.75pcts); ② Inspection and testing. The business entity is the subsidiary Jing Hanyu. The revenue of this business in 2023 (327 million yuan, -25.73%) dropped sharply, mainly due to a decrease in some inspection prices, and a decrease in gross profit margin (60.06%, -9.44pcts). In order to expand its influence in the field of military equipment inspection and testing, Jing Han Yu continued to expand the field of environmental testing, adding the Beijing Environmental Test Center and completing CNAS certification in November 2023; ③ Brake discs (secondary), revenue (192 million yuan, +42.9496) increased dramatically, mainly due to the increase in business scale brought about by the expansion of civil aviation customers, but the low gross margin of the civilian products business also led to a decline in the gross profit margin of this business (51.92%, -34.01pcts). In addition, the company participated in the Paris Air Show and the Dubai Air Show in 2023, and signed procurement and custom development agreements for several types of aircraft wheels, brakes, etc., or brought additional performance to the company, and the civil aviation business will accelerate to the second curve of the company's performance growth; ④ The landing gear business achieved revenue of 4.48 million yuan, accounting for 0.47% of the business, mainly because the company's various types of landing gear products reached important application points and entered the scientific research or small-batch production stage. In addition, the company's landing gear business has made a series of progress. For example, the company's landing gear business has completed the development and development of several new aircraft. The test mission was completed, the principle sample verification of a new type of aircraft landing gear was completed (this configuration is the first of its kind in China), and at the same time, a new drone landing gear track for a space project was also pioneered. Meanwhile, the commissioning and use of the “surface treatment production line for large military and civilian aircraft landing gears” of the company's holding company, Tianjin Quanshun Metal Surface Treatment Co., Ltd., will provide a strong guarantee for the progress of landing gear products at all stages. The landing gear business is also expected to become a new performance growth point for the company. R&D personnel have increased dramatically, and cash flow from operating activities has improved markedly. In 2023, the company's three-fee rate (total amount of 111 million yuan, three-rate rate 11.67%, +1.38pcts) increased slightly; R&D expenses (86 million yuan, +8.32% year over year, R&D expenses rate 8.98%, +1.05 pcts year on year) increased slightly, and R&D personnel (203 people, +32.87% year over year) increased significantly.

Judging from the cash flow statement, the net cash flow from the company's operating activities in 2023 ($201 million, +238.50%) improved markedly, mainly due to better repayments, while the subsidiary Jing Han Yu enjoyed tax benefits and tax refunds.

Accounts receivable are better controlled, and inventories are growing to cope with market demand. Looking at the balance sheet, in 2023, the company's accounts receivable (1,856 billion yuan, +7.5496 year on year) were well controlled, and the growth rate slowed significantly; advance payments (48 million yuan, +150.14% year over year), contract liabilities (0.04 billion yuan, +233.23% 6) grew rapidly, and inventory (720 million yuan, +32.40% year over year), we think raw materials increased by 36.83% and semi-finished products increased by 45.13%.

Revenue and profit declined in 2024Q1, and the increase in expenses during the period affected net interest rates. 2024Q1, the company's revenue (240 million yuan, -23.71% YoY) and net profit to mother (73 million yuan, 45.63% YoY) declined, mainly due to changes in the pace of demand from downstream military customers. However, the market share of the company's military business has not changed, and it is expected to recover in the future as customer demand changes. The decline in gross profit margin (62.63%, 7.22pcts year on year) was mainly due to an increase in the share of the landing gear business with relatively low gross margin. The rapid decline in net profit margin (37.34%, -13.06 pcts year on year) was mainly due to a decline in revenue, which increased the share of the period expenses (17.94%, +4.65pcts; period expenses of 43 million yuan, +2.93% year over year). In addition, 2023Q1 received VAT refunds, which were not received in 2024Q1.

Production capacity expansion and technology research and development have been implemented, and technical capabilities in the field of landing gear for large civil aircraft have been actively expanded. The company announced in October 2023 that the company has optimized the structural plan and model selection of the fund-raising project “Aircraft Wheel Product Capacity Expansion Project” and the “Aircraft Landing System Technology Research Center Construction Project”, reduced the amount of equipment procurement, and used the saved capital to add the “Civil Aircraft Landing Gear Landing System Comprehensive Test Project” and supplementary liquidity. The new project is expected to land at the end of 2025. At that time, it will further increase the company's R&D and testing capabilities for large aircraft landing gear products to help the company actively participate in the strategic planning of large aircraft.

The “Aircraft Wheel Product Capacity Expansion Project” and the “Aircraft Landing System Technology Research Center Construction Project” were implemented at the end of 2023. As production capacity for the company's main products such as brake discs, wheels, and landing gear landing systems is implemented, compounded by the increase in military demand in the “second half” of the 14th Five-Year Plan, the company is expected to achieve leapfrog growth in profitability in the future.

The testing and testing business of Beijing, Han, and Yu is expected to bottom out and rebound. The company announced in March 2024 that it had acquired 36.75% of Jing Hanyu's shares. After the acquisition was completed, the company held 87.75% of Jing Hanyu's shares. Beijing Hanyu and Beihang have set up a joint laboratory and will continue to deepen the strategic cooperation layout. The analytical testing business will strengthen cooperation with aerospace suppliers in the future. Environmental testing has already taken shape. In 2024, it will fully undertake customer tasks and build test capabilities in Xi'an and Nanjing according to business needs. At the same time, the company will strengthen cooperation in the industry and expand new projects. The project direction includes wafer testing, finished product testing, automotive electronics, high-power devices, software evaluation, etc., and eventually form a one-stop, comprehensive professional reliability testing agency. We believe that military I component testing is the cornerstone of military weapons and equipment quality assurance. As industry demand improves, future prices and orders are expected to be repaired. At the same time, with the improvement of Beijing Hanyu's equity and governance, the inspection and testing business is expected to bottom out and rebound in the future.

Continuously improve the level of support and focus on the main aviation industry. Based on brake discs (auxiliary), the company gradually expanded to the entire aircraft wheel, brake control system, and landing gear landing system, and developed in the direction of integration and intelligence. In 2021, the company officially completed the delivery of the landing gear landing system, and achieved a leapfrog transformation from a parts supplier and material supplier to a system supplier and overall solution provider. The level of support has increased significantly. In the future, with sales of landing gear products, it is expected to increase the company's profits. Furthermore, due to the increasing number of qualified manufacturers of high-speed rail brakes, the market is crowded and competition is fierce. The company returned to the main aviation circuit and plans to terminate the “High-speed Train Basic Friction Materials and Brake Disc Industrialization Project” and use the savings raised to permanently supplement working capital.

Investment advice:

1. With the autonomous and controllable demand of civil aviation, the company's civil aviation brake pads may gradually gain strength, and market penetration continues to increase.

2. The company continues to promote production capacity building for brake discs, wheels and landing gear landing systems, focusing on the core business. As demand in the “second half” of the military industry + 4 5 improves, the company is expected to further expand profit margins.

3. The company has continuously upgraded its support level and already has landing gear production capacity. The company's new fund-raising projects to develop and test capabilities for large domestic aircraft landing gear products will help the company take a two-pronged approach in military aircraft and civilian aircraft to increase its profit scale.

We expect the company's revenue for 2024-2026 to be 1,302 million yuan, 1,636 million yuan and 2,058 billion yuan respectively, net profit to mother of 350 million yuan, 449 million yuan and 551 million yuan respectively, and EPS of 1.05 yuan, 1.35 yuan and 1.66 yuan respectively. Maintaining a “buy” rating, the target price is 40.00 yuan, which corresponds to 38 times, 30 times, and 24 times PE of the predicted EPS for 2024-2026.

Risk warning

High customer concentration, product price reduction due to military product price reviews, poor development of civil aviation, and declining market sentiment