Event: The company announced on April 24 that in 2024Q1, it will achieve revenue (267 million yuan, +16.88%), net profit to mother (0.26 million yuan, +102.28% year over year), gross profit margin (37.05%, -4.45 pcts year on year), and net profit margin (8.58%, +4.14 pcts year on year). In 2023, we achieved revenue ($1,053 million, +15.81%), net profit to mother ($47 million, +263.21%), gross profit margin (36.47%, -3.76pcts), and net profit margin (3.51%, +3.27pcts).

Based on aviation maintenance, we are expanding into the fields of aviation equipment R&D and manufacturing, and integrated circuit design and manufacturing. As the first private aviation maintenance enterprise in China, the company expanded its business scope from maintenance to the fields of inspection equipment manufacturing, aviation subsystem solutions, aviation parts, etc., forming a “trinity” development strategy with high-end equipment development and support, aviation engineering technology and service, and high-performance integrated circuit design and manufacturing as the main business. The company's business covers aviation, satellite communications, photovoltaics, electronic information and other fields. In the context of China's vigorous development of aerospace, low-altitude economy, and artificial intelligence industries, the company has broad development space.

The company's performance benefited from the recovery of the air transport industry. In 2023, the company achieved significant growth in revenue ($1,053 million, +15.81%) and net profit to mother (0.47 million yuan, +263.21%). Under the general environment of the recovery of the air transport industry, the company further adjusted and optimized the development direction and path of various industries, promoted mature projects to expand production capacity, and actively expand domestic and foreign business to jointly drive the company's performance improvement. The gross profit margin (36.47%, -3.76pcts) increased, mainly due to the period expense ratio (28.03%, +3.27pcts) -6.34pcts) was caused by a decrease.

2023 by business area:

① The increase in aviation engineering technology and services, revenue (756 million yuan, +12.91%) is mainly due to the company seizing recovery opportunities in the civil aviation transportation industry, expanding maintenance support capabilities for new models, enhancing in-depth cooperation with OEMs, strengthening PMA R&D and manufacturing capabilities, and continuing to improve maintenance depth, maintenance added value and service levels, compounded by cost reduction and efficiency. This sector covers transport aircraft maintenance, business jet maintenance, aviation department accessory maintenance, aircraft passenger aircraft conversion to freighter, flight training, etc. The business share (71.80%, -1.84pcts) fluctuated slightly, and the gross profit margin (38.93%, +0.05pcts) remained stable. In addition, the company is currently constructing 3 new passenger to cargo production lines, which are expected to be put into use in 2025; ② High-end core equipment development and guarantee, and revenue (239 million yuan, +25.65%) has increased dramatically. In terms of R&D and manufacturing, the company continues to carry out serialization and prototyping work. Among them, electric rescue winches actively explore civil aviation and general aviation customers, deliver long-term cabin oxygen systems to customers, and complete airworthiness forensic testing and verification work. In addition, the company's subsidiary Ansheng completed the delivery of D-class full-motion flight simulators to Boeing and Airbus, and obtained CAAC operation approval, and also carried out strategic cooperation with leading eVTOL companies such as Wofei Longspace to lay out the low-altitude industry; in terms of security, engine support delivery reached a record high, reached engine-related cooperation with Psifeng, and continued to expand support models and iterative support capabilities. The business share (22.72%, +1.78pcts) increased slightly, and the gross profit margin (27.68%, -11.92pcts) decreased; ③ High performance integrated circuit design and The manufacturing is carried out by the participating company Huaxin Technology (the company holds 32.27% of the shares). It has built the first domestic 6 o'clock compound semiconductor production line, filling the gap in domestic compound semiconductor chip manufacturing and making high-end chips autonomous and controllable. The company adheres to the strategy of “expanding civilian products and strengthening scientific equipment” and actively lays out fields such as new energy, automotive electronics, optoelectronic sensing, 5G mobile communication, etc., and completed the inspection of key science and equipment projects on time, driving Huaxin Technology's revenue in 2023 (340 million yuan, +60.18%) to increase dramatically.

Looking at some important subsidiaries: “Haite Feian” is the most influential third-party flight training service provider in China; “Yamei Power” is an enterprise with reliable products and high service quality in the field of core equipment development and support; “Tianjin Aircraft Engineering” is at a leading position in the country; “Ansheng” continues to provide domestic and foreign customers with high-end simulation technology services such as D-class full-motion flight simulators and eVTOL simulators; “Shanghai Hute” wheel brake maintenance was prominent in East China. During the reporting period, Shanghai Hute further increased its market share in East China. production line It has expanded its production scale and achieved a new breakthrough in business; “eJet Haite” is the business jet technical service provider with the strongest maintenance capabilities and the largest working hours in Greater China.

Expenses declined during the period, and capitalization of R&D investment increased. The company's expense ratio for the 2023 period (total amount of 295 million yuan, -5.54%, period fee rate of 28.03%, -6.34pcts) declined, mainly due to a decrease of 11.07 million yuan in equity incentive expenses this year compared to the same period last year, resulting in a decrease in management expenses ratio (total of 157 million yuan, -6.19%, management expense ratio 14.90%, -3.50 pcts).

The company's R&D expenditure rate (total of 40 million yuan, -28.20%, R&D expenditure rate 3.84%, -2.35pcts) declined slightly, mainly due to an increase in the company's R&D capitalization (capitalization amount of 0.24 billion yuan, +877.97%, accounting for 37.36% of R&D investment). Overall, the company's R&D investment (RMB 65 million, +9.81%) continued to grow.

Inventory increased due to preparation and execution of orders, and increased cash flow from aircraft purchases. Looking at the balance sheet, in 2023, the company's contract liabilities ($123 million, +56.80%) grew rapidly, and inventory (500 million yuan, +41.70%) increased significantly, mainly due to the increase in the company's execution of orders leading to increased product (95 million yuan, +222.49%) and contract performance costs (46 million yuan, +104.78%), as well as increased preparation of raw materials (340 million yuan, +20.74%). We believe that the increase in the company's demand will increase performance as orders are delivered.

Judging from the cash flow statement, the net cash flow from the company's operating activities in 2023 ($338 million, -29.27%) declined, mainly due to the reduction in tax rebates received by the company this year compared to the same period of the previous year, and the increase in taxes paid by the company this year compared to the same period of the previous year, while the company invested more to prepare orders; the net cash flow from investment activities (-680 million yuan, +1820.22%) increased significantly, mainly due to the company paying 470 million yuan to buy new aircraft; net cash flow from financing activities ( 262 million yuan, +176.79%) The increase was mainly due to increased bank loans for aircraft purchases.

The scale of revenue increased in 2024Q1, and profitability increased dramatically. With 2024Q1, the company achieved a significant increase in revenue (267 million yuan, 16.88% year on year), net profit to mother (0.26 million yuan, year on year + 102.289), a decrease in gross profit margin (37.05%, 4.45 pcts year on year), and an increase in net interest rate (8.58%, +4.14 pcts year on year) mainly due to a decrease in the period cost ratio (26.2196, 4.33 pcts).

The low-altitude economy will become a new growth point for the company's performance. The company's business expanded from aviation maintenance to aviation manufacturing, aeronautical engineering technology and services, covering aviation product manufacturing such as major aircraft engine components, D-class full-motion flight simulators, domestic civil aircraft cabin oxygen systems, aviation equipment automatic control systems, etc., aircraft overhaul, aviation accessories, passenger conversion, aircraft dismantling, and flight training.

The company maintains close cooperation with Boeing and Airbus. With the recovery of the air transport industry, aircraft maintenance, passenger conversion, and flight training all have large market space, which has increased the scale of the company's performance. At the same time, in the context of domestic substitution, autonomy and control, the company will benefit as a national maintenance support base for small and medium-sized engines designated by national ministries and departments and the deputy division unit for localization support for certain key models of engines, and the company's business layout in the manufacturing direction related to large domestic aircraft will also be developed. In addition, the company successfully developed and delivered the first domestic eVTOL simulator and eVTOL simulation solution, promoted the development of drone avionics systems and eVTOL simulation training simulators, maintained close strategic cooperation with major eVTOL mainframe manufacturers, laid out the low-altitude economy field, and brought new growth points to the company's performance.

Investment advice:

1. With the recovery of the air transport industry, the company's aviation maintenance and passenger conversion business will develop rapidly; 2. The company will increase investment in R&D to promote technological innovation. In the context of localization replacement, the company will fully benefit as a maintenance support base for small and medium-sized engines in China and the deputy general manager unit for localization support for certain key models of engines. At the same time, the development of products related to large domestic aircraft will lay the foundation for future performance growth; 3. The company will seize new opportunities in the low-altitude economy and actively promote R&D work in the field of drones and eVTOL projects to lay out new industries and create new performance growth points.

We expect the company's revenue for 20242026 to be 1,255 billion yuan, 1,507 billion yuan and 1,818 billion yuan respectively, net profit to mother of 73 million yuan, 98 million yuan and 130 million yuan respectively, and EPS of 0.10 yuan, 0.13 yuan and 0.18 yuan respectively. The first coverage gave a “buy” rating. The closing price was 10.71 yuan on May 8, 2024, corresponding to 107 times, 82 times, and 60 times PE of the predicted EPS for 2024-2026.

Risk warning

Risk of policy changes, risk of changes in customer needs, risk of R&D project progress falling short of expectations, etc.