Incidents:
The company announced the 2023 Annual Report and the 2024 Q1 Quarterly Report. According to the company's announcement, in 2023, it achieved operating income of 23.330 billion yuan (yoy +19.8%), achieved net profit of 443 million yuan (yoy +14.1%); realized deducted non-net profit of 403 million yuan (yoy +17.1%); achieved operating income of 3.373 billion yuan (yoy +2.8%); achieved net profit of 130 million yuan; and achieved net profit of 118 million yuan after deduction of non-return to mother. The company's performance is in line with market expectations. 2024Q1
Comment:
Delivery volume of major aviation products increased, and revenue continued to grow in 2023. According to the company announcement, the company achieved operating revenue of 23.330 billion yuan (yoy +19.81%) in 2023. According to our analysis: 1) By product, the company's aviation products achieved operating income of 231 billion yuan (yoy +20.4%), accounting for 98.94% of revenue, and fan products achieved operating income of 48.49 million yuan (yoy -21.73%). The main aviation industry led to a steady increase in overall revenue; 2) Looking at the subsidiary companies, Hafei Airlines and Hafei GM (Harbin Division) achieved revenue of 16.783 billion yuan (yoy+21.49) %), accounting for 71.94% of total revenue, Changhe Airlines and Jingde Hi-Tech (Jingdezhen Division) achieved revenue of 5.583 billion yuan (yoy +8.59%), accounting for 23.93% of total revenue; Baoding Division achieved revenue of 716 million yuan, accounting for 3.07% of total revenue; 3) Looking at the degree of completion of the indicators, the completion rate of the 2023 revenue index was 105.81%, exceeding the target; 4) On a quarterly basis, 2024Q1 achieved revenue of 3.373 billion yuan (yoy +2.76%), and completed the annual revenue target 10.95%, maintaining a steady increase in performance in the first quarter. Considering the recovery in the company's main business boom and the orderly delivery of products, revenue is expected to grow steadily throughout 2024.
Product-side profitability rebounded, and the company's performance was in line with market expectations. According to the company announcement, the company's net profit to mother increased significantly in 2023 and 2024Q1. According to our analysis: 1) In terms of gross margin, the company's gross margin in 2023 was 10.13%, down 0.17pcts from 2022, mainly due to price adjustments for some products; the company's 2024Q1 gross margin was 11.60%, an increase of 4.54pcts over the same period last year; 2) Looking at net interest rates, the net interest rate in 2023 decreased 0.50pcts to 1.49% compared to the same period last year, and 2024Q1 increased 3.53 pcts to 3.81% over the same period last year. The company's profitability rebounded markedly; 3) From expenses On the other hand, the company's expense ratio for the 2023/2024Q1 period was 8.27%/7.65%, an increase of 0.05/1.12 pcts over the same period last year; 4) The company accrued asset impairment losses of 71.12 million yuan in 2023, mainly due to falling inventory prices in the Jingdezhen branch and an increase in impairment losses on contract performance costs. It is expected that in the later stages, as market expectations improve, the company's profitability will continue to be optimized, and the company's performance is expected to accelerate growth.
Contract liabilities and inventories have increased dramatically, and rising industry demand guarantees the company's performance. According to the company's announcement, as of 2024Q1, the company's contract debt was 8.263 billion yuan, an increase of 478.24%; the company's inventory was 20.446 billion yuan, an increase of 58.26% over the previous month. Our analysis: 1) the high increase in contract debt reflects a sharp increase in the company's on-hand orders, and future performance is guaranteed; 2) the increase in inventory reflects the acceleration of the company's production and preparation pace, and the high boom in the industry spawned a rise in downstream demand.
High-quality asset acquisitions have strengthened their position in the industry, and aviation core OEMs have made a lot of money. 1) The company is currently the main force in the domestic helicopter manufacturing industry with the largest scale, the highest output value, and the most complete product range. The core products cover military and civilian needs and have broad development prospects; 2) The company completed the acquisition of Changfei and Hafei in March 2024 to further strengthen the helicopter business integration and consolidate its central position in the helicopter industry.
The 2024-25E profit forecast was lowered and the “Buy” rating was maintained. Considering the impact of price adjustments on some of the company's products, we lowered the company's 2024-25E net profit forecast to be 724/886 million yuan (previous value was 934/1,225 million yuan), added the 2026E net profit forecast to 1,068 million yuan, and the PE corresponding to the current stock price is 34/28/23/ times. China Airlines Shen Fei (military aircraft main engine factory), China Airlines Xifei (transport aircraft engine manufacturer), and Aero Engine Power (aero engine engine manufacturer) were selected as comparable companies in the same industry. The average PE in the next three years will be 46/36/29 times, and the company's PE in 2024 is lower than the industry average. Considering that the company's main aviation industry is full of orders and production and delivery are progressing in an orderly manner, it maintains a “buy” rating.
Risk warning: military aircraft procurement price adjustment; military aircraft procurement process falls short of expectations; new model development process falls short of expectations