Incidents:
The company announced its 2023 and 2024Q1 results. According to the company announcement, the company achieved operating income of 29.07 billion yuan (yoy +4.63%) in 2023, realized net profit of 1,886 million yuan (yoy +39.62%); realized deducted non-net profit of 1,464 billion yuan (yoy +110.09%), achieved operating income of 5.643 billion yuan (yoy -10.03%) in 2024Q1, and realized net profit of 454 million yuan (yoy +35.19%); realized deducted non-net profit of 361 million yuan (yoy +99.01%) , the performance is in line with market expectations.
Comment:
Revenue from aviation products in the main business has increased steadily, and the defense aviation industry has achieved remarkable development results. According to the company announcement, the company achieved steady revenue growth in 2023. According to our analysis: 1) By product, aviation products achieved revenue of 24.738 billion yuan (yoy +151.33%), accounting for 85% of revenue, modern industry and other products achieved revenue of 3.194 billion yuan, and defense products achieved revenue of 1,075 billion yuan; 2) By industry, the aircraft manufacturing industry achieved revenue of 24.738 billion yuan and automobile and other industries. The company focused on the main aviation industry to drive steady overall revenue Growth; 3) On a quarterly basis, 2024Q1 achieved revenue of 5.643 billion yuan (yoy -10.03%) and achieved 19.78% of the 2024 revenue target. After the company completed asset absorption and merger, its main position in the aviation business became prominent. Along with the orderly transmission of orders in the aviation sector, the company's revenue is expected to continue to increase steadily throughout 2024.
Cost-side control is showing initial results, and the company's performance is in line with market expectations. According to the company's announcement, the company's net profit for 23 and 24Q1 both increased sharply by 39.62%/35.19%. Our analysis suggests that: 1) In terms of gross margin, due to the market environment, the company's gross margin in 2023 decreased by 1.81pcts to 29.73% compared to 2022; 2) In terms of net interest rate, due to the overall profitability of the product, the company's 2023 net interest rate decreased by 0.65pcts to 7.41% compared to 2022; 3) From the cost side, cost ratio control has begun to bear fruit in the past two years, 22/23/24Q1 The cost rate for the period was 21.87%/22.18%/15.70%, of which management expenses were 9.13%/8.45%/7.32%, respectively, and R&D expenses were 10.65%/12.03%/7.31%, respectively. As the company's scale effect increases and product profitability increases, and cost reduction continues to be deepened on the superimposed cost side, the company's performance for the full year of 2024 is expected to continue to increase.
Inventory and contract liabilities remain high to ensure the steady growth of the company's revenue. According to the company's announcement, as of the end of 2024Q1, the company's inventory was 14.128 billion yuan, the company had sufficient reserves of production materials, and the pace of subsequent production scheduling was strong. As of the end of 2024Q1, the company's contractual debt was 2,379 billion yuan. The company has sufficient orders in hand, and the boom in the industry guarantees a steady increase in the company's future revenue.
Civil-military resonance integrates multi-field layouts to create a flagship avionics system platform. 1) As a core supplier of domestic avionics systems, the company has continuously improved its layout through multiple asset integrations, covering various fields such as military and civil aviation, advanced manufacturing, etc., and has a prominent position in the industry; 2) The company has thoroughly implemented state-owned enterprise reform, has achieved specialized integration with China Airlines in the field of airborne systems to form a core platform for airborne systems, and will fully enjoy the dividends of continuous platform reform in the future; 3) As a supporting supplier for the C919 project, the multi-type products have completed airworthiness certification, and emergency rescue products such as photoelectric gondolas have been delivered in batches. According to China Commercial Aviation's disclosure, the C919 has achieved batch delivery of emergency rescue products such as photoelectric gondolas. Definitive orders have exceeded 400, and the company will fully benefit from the increase in demand for upstream production of large domestic aircraft.
The 2024E profit forecast was raised and the “Buy” rating was maintained. The company completed China Aviation's electromechanical absorption in 2023 and became the core platform for airborne systems, and considering the steady increase in demand from the company's downstream military and civilian sides, we raised the 2024E net profit forecast to be 2,137 billion yuan (original value was 1,447 billion yuan), and the profit forecast for 2025-26E was 2,465/2,928 billion yuan. The PE corresponding to the current stock price is 28/24/20 times. Companies in the same industry, Aviation Development Control (engine control system), Guangzhou Union Airlines (C919 parts supplier), and Hangya Technology (aero engine parts) were selected as comparable companies. The industry average PE for the next three years will be 34/27/22 times, and the company's PE in 2024 is lower than the industry average. Considering that the company is the core target of domestic military and civil aviation airborne products, benefiting from the release of demand for military and civilian aircraft in the future, the company's performance is expected to continue to grow, so it maintains a “buy” rating.
Risk warning: Downstream demand falls short of expectations, company project commissioning progress and order acquisition falls short of expectations, supply chain risks.