Introduction to this report:

Affected by factors such as tax policy adjustments and the fact that a formal contract for related product orders has not yet been signed, the company's performance is under phased pressure. The inflection point of long-term strong demand is approaching, which is expected to drive rapid growth in performance.

Key points of investment:

The target price was lowered to $12.28 to maintain the “Overweight” rating. The company benefited from high downstream demand during the “14th Five-Year Plan” period, and its performance is expected to achieve high growth. Affected by factors such as the pace of signing orders for related products, EPS for 24-25 was reduced to 0.16/0.26 yuan (originally 0.25/0.34 yuan), and the additional 26-year EPS was 0.32 yuan. Referring to 40 times the average PE of comparable companies, considering that downstream demand was determined and the company's industrial chain card position advantage was significant, 75 times PE was given in 24 years, and the target price was lowered to 12.28 yuan to maintain the “increase” rating.

Short-term orders fell short of expectations, and performance was under phased pressure. 1) In 2023, the company achieved revenue of 3,565 billion yuan (-7.16% YoY), achieving net profit of 192 million yuan (YoY +3.9%); in 2024Q1, the company achieved revenue of 786.07 million yuan (-86.54% YoY), and realized net profit to mother of 497.582 million yuan (-302.67% YoY). 2) The revenue side declined due to factors such as tax policy adjustments and the failure to sign a formal contract for related product orders; fixed expenses remained basically flat year over year, and 24Q1 profit side lost money. 3) In 2023, the company's gross profit margin was 24.8% (+3.2 percentage points year on year), and the net profit margin was 7.0% (+0.3 percentage points year on year), a record high in the past five years.

The inflection point of long-term demand is approaching, driving rapid growth in performance. 1) Referring to the Russian-Ukrainian conflict and the Palestinian-Israeli conflict, cost-effective weapons and equipment such as rockets consume huge amounts in actual combat, and demand in industries related to China's national defense construction is expected to remain high for a long time. 2) As a core enterprise under the Weapons Group, the company focuses on the main business “navigation control and ammunition information technology”, with remarkable card slot advantages. 3) With the gradual implementation of strong downstream demand and continuous improvement in the company's operating efficiency, performance is expected to recover and achieve rapid growth.

Catalysts: Downstream related equipment supplied by the company has begun to be released.

Risk warning: The repayment situation falls short of expectations, and downstream demand falls short of expectations