Event: Company discloses results for the first quarter of 2024

Many indicators in the report are improving, and the prospects for civil-military collaboration are promising.

24Q1 achieved revenue of 8.455 billion yuan, +6.45% year over year; realized net profit of 272 million yuan, +15.67% year over year; realized net profit without deduction of 277 million yuan, +24.52% year over year. We believe that, benefiting from the upward delivery stage of the company's main products, the high prosperity of the military and civilian large and medium aircraft market, and the continuous growth of 24Q1's performance, the company has shown a steady development trend, and the prospects are positive.

On the balance and liability side, the 24Q1 company's monetary capital was 8.389 billion yuan, a decrease of 56.54% from the end of 23; advance payments were 3.263 billion yuan, an increase of 46.86% over the end of 23; and inventory was 25.472 billion yuan, an increase of 9% over the end of 23.

The changes in the above indicators are due to an increase in procurement. We believe that the company is actively preparing production and goods, and future performance changes can be expected.

Equity incentives helped improve performance, and COMAC launched the “2023 Annual Report on the Work of the Board of Directors” on April 1, 2024, which clearly stated that the 24-year operating target is to achieve operating income of 45.1 billion yuan, or +12% over the same period last year. Looking back at the implementation of the company's first equity incentive in November 2022, it marks the official launch of the company's 10-year long-term incentive plan. We believe that the company continues to promote cost control throughout the value chain, there is plenty of room for cost reduction and efficiency. Combined equity incentives have increased management enthusiasm, and business performance is expected to enter a long-term improvement path. With the steady delivery of orders for 300 C919 aircraft from Air China, China Southern Airlines, and China Eastern Airlines, the company's performance is expected to reach a new level.

Related transactions are expected to continue to grow, reflecting the high level of downstream demand. According to the “2024 Daily Related Transactions Forecast Notice” issued by the company, the company expects to purchase 24.785 billion yuan in 2024, +22.09% compared to the 23 forecast; sales to related parties are expected to be 746 million yuan, +10.28% year-on-year. On April 2, 2024, the company signed a “Framework Agreement on Daily Related Transactions” with the relevant party Aviation Industry Group to guarantee the company's 24 years of scientific research, production and operation. We believe that the increase in company-related transactions reflects strong demand from downstream customers, and product orders are expected to continue to grow in the new year.

The military and civilians work together to build two wings, and the domestic and foreign layout goes global

In the domestic and military sector, the company's products cover China's major military large and medium-sized transport aircraft and bomber series models. With the “14th Five-Year Plan” defense equipment leaps up and demand for strategic air force equipment rises, the company's performance is expected to be further released; in the civil sector, the company's civilian components cover all major domestic civilian large and medium aircraft models, and is a development unit for core components of Xinzhou, C919, AG600, and ARJ21 aircraft. Overseas, the company has expanded its international subcontract production business and is a parts manufacturer for some Boeing and Airbus aircraft models. We believe that as a leading platform for R&D and manufacturing of medium and large military and civilian aircraft, the company can coordinate the two major businesses of complete aircraft and subcontracting, and both domestic and international markets, and is expected to fully benefit from the leapfrog development of military defense equipment and rising demand in the civilian market. According to the aviation industry's “exploration generation, pre-research generation, development generation, and production generation” strategy, Xifei may have a relay launch of new models in the future, which is expected to form new performance support.

Profit forecast and rating: In summary, as a leading large and medium-sized aircraft enterprise in China, the company is expected to fully benefit from the “14th Five-Year Plan” leapfrog development demand boom, compounded by continued strong demand for large domestic aircraft. We judge that the company's short performance is improving in the medium to long term. Considering the company's R&D growth and C919 order delivery in the early stages, we slightly lowered the company's net profit forecast from 1,503/2,060 billion yuan to 1,168/1,623 billion yuan in 24-25, and added a net profit forecast of 2,316 billion yuan for 26, corresponding to PE58.21/41.92/29.37X, maintaining a “buy” rating.

Risk warning: risk of fluctuations in military business; risk of developing new models of equipment falling short of expectations; risk of product price; risk of business conditions and profitability falling short of expectations.