Core views

Recently, the company's helicopters participated in emergency management exercises. The company's various civilian helicopters can play a role in material transportation, search and rescue, medical care, etc. In the historical context of the development of the low-altitude economy, the company's civilian market space is vast. The company may have gone through a painful period of performance caused by changes in the product structure. The new product structure is gradually taking shape. With the support of mature products, the company's overall performance is expected to resume steady and rapid growth in the next 1-2 years, and the company is expected to break out of the trough throughout 2024 and achieve steady and rapid growth in performance.

Brief review

Recently, the company's helicopters participated in emergency management exercises. Recently, the National Flood Control and Drought Relief Headquarters Office, the Ministry of Emergency Management, and the Zhejiang Provincial Government jointly organized joint rescue exercises for super typhoon prevention and massive floods in Zhejiang Jinhua and other places, codenamed “Emergency Mission?

2024”. Various types of equipment such as 2 straight 8 series helicopters independently developed by China Aviation Industry Group, 1 “Pterosaur” -2H emergency relief drone, and AR500 unmanned helicopter participated in the exercise and static display.

The straight 8AWJS and straight 8K helicopters produced by the company are equipped with search and life saving equipment. They have the characteristics of flexible maneuverability and high load capacity, and can complete tasks such as transporting wounded, aerial search and rescue, and transporting personnel and supplies. During the exercise, the Straight 8 series helicopters successfully completed exercise tasks in various participating subjects, such as aerial reconnaissance, rescue of trapped train personnel, rescue of people falling into the water (water gondola rescue), and formation flight, and played an important role.

In the historical context of the development of the low-altitude economy, the company's various civilian helicopters can play a role in material transportation, search and rescue, medical care, etc., and the civilian market space is vast.

The AC313 is a 13-ton, single-rotor, multi-purpose civil helicopter with tail propeller that can accommodate 2 pilots and 28 crew members. It can improve mission capabilities such as personnel and material transportation, large-scale equipment lifting, emergency and disaster relief, and medical rescue. It also has in-cabin vehicle transportation and full-aircraft anti-icing functions to meet the needs of users throughout China; the AC352 has a maximum take-off weight of 7.5 tons, a maximum range of 850 kilometers, and can carry 14 to 16 passengers. This type of aircraft conforms to the latest international airworthiness standards and can be widely used in offshore transportation, search and rescue, general transportation, official law enforcement, medical care, material delivery, etc. The AC332 is a 4-ton advanced dual-engine multi-purpose helicopter newly developed in accordance with CCAR-29's latest airworthiness requirements. It can carry 10 passengers, taking into account better usage performance, lower usage costs, and diverse configuration requirements. It fully meets the business needs of transportation, search and rescue, and medical care in the plateau region.

The development of the low-altitude economy promotes new demand. Civilian products may form a second curve. In 2024, the low-altitude economy was first included in the government work report. At the end of the first quarter, the three departments jointly issued the “Implementation Plan for Innovative Application of General Aviation Equipment (2024-2030)”. The main equipment and key development directions of the low-altitude economy were indicated, and specific flight areas and verification models for different scenarios were drawn out.

It is clearly stated that aviation equipment related to the low-altitude economy should use the Beidou system for coordination and dispatch. At the same time, a practical timeline is proposed for the overall development process of the low-altitude economy, that is, by 2027, it is necessary to improve the overall low-altitude economic equipment system, achieve commercial application, and from demonstration to promotion, thus forming a mature industrial chain; by 2030, drones, Evtol transportation, and other low-altitude unmanned operations will be fully operational, forming a trillion dollar market size. Driven by both industry and policy, the development of infrastructure support and aviation equipment industry chains related to the low-altitude economy is expected to continue to advance steadily.

In 2024, the low-altitude economy was first included in the government work report. At the end of the first quarter, the three departments jointly issued the “Implementation Plan for Innovative Application of General Aviation Equipment (2024-2030)”. The main equipment and key development directions of the low-altitude economy were indicated, and specific flight areas and verification models for different scenarios were drawn out.

It is clearly stated that aviation equipment related to the low-altitude economy should use the Beidou system for coordination and dispatch. At the same time, a practical timeline is proposed for the overall development process of the low-altitude economy, that is, by 2027, it is necessary to improve the overall low-altitude economic equipment system, achieve commercial application, and from demonstration to promotion, thus forming a mature industrial chain; by 2030, drones, Evtol transportation, and other low-altitude unmanned operations will be fully operational, forming a trillion dollar market size. Driven by both industry and policy, the development of infrastructure support and aviation equipment industry chains related to the low-altitude economy is expected to continue to advance steadily.

Under new historical opportunities, expectations for major development of the general aviation industry are even stronger. The number of operations in the fields of police aviation, forest fire prevention, air tourism, and flight training is increasing year by year, putting great demand on domestic helicopters. The company is at the bottom of the industrial chain in the field of domestic civilian helicopters. The products cover domestic military and civilian helicopters. The aircraft spectrum is relatively complete, and all tonnage products can complete import substitution. The company's civil aircraft research carried out “four-aircraft test flights”, “two-plane review”, and “one-aircraft forensics”. Sales of various types of helicopters are progressing steadily, and the main products are gradually stabilizing the market. Many high-level meetings and in-depth exchanges have been held with companies such as Sikorsky, Airbus Helicopter, and Leonardo on existing cooperation projects and potential fields, effectively promoting cooperation on models, technology, and after-sales service. In terms of fixed wings, the company uses Y12 and Y12F aircraft as platforms, focusing on the development of domestic and international markets, and focusing on developing customized improvements and modifications. Driven by both civilian helicopters and fixed-wing products, civilian products are expected to be a strong support for the company's performance in the future.

On September 25, 2023, the signing ceremony for a high-speed electric vertical take-off and landing vehicle (h-EVTOL) developed by the company, in collaboration with the China Aviation Research Institute and China Aviation Technology, was held at the China Aviation Development Building. The three cooperating parties are planning cooperation in early 2022 to accelerate deployment in this field. After a year and a half of technical demonstration and market research, the work team visited a number of research institutes and related industry units, and formed a technical plan at the end of June 2023, which was reviewed and approved by internal and external experts. The signing of this agreement marks the official launch of the project. The company and group research institutes have obvious technical, processing, integration and forensic advantages in the Evtol R&D field. As a major domestic aircraft manufacturer, the launch of Evtol products is of benchmark significance. Against the backdrop of growing demand for low-altitude equipment such as Evtol, civil helicopters, and small to medium sized fixed wings, the company's overall civilian products may become the second curve of performance support.

Profit forecast and investment rating: Aviation products are expected to accelerate growth and maintain the purchasing rating company as a military and civilian helicopter listing platform. After this asset injection, the industrial chain was further improved, complicated processes were simplified, and production and research matching efficiency between divisions was significantly improved; subsequent new models of military aircraft products appeared one after another, providing strong support for the company's medium- to long-term growth. The company's net profit from 2024 to 2026 is expected to be 784 million yuan, 949 million yuan, and 1,094 million yuan, respectively, with year-on-year increases of 77.02%, 21.05%, and 15.28%, respectively. The corresponding EPS for 24 to 26 was 1.07, 1.30, and 1.50 yuan, respectively, corresponding to the current stock price PE of 38, 31, and 27 times, respectively, maintaining the purchase rating.

Using the PE comparable company valuation method, the company can compare the net profit of the companies China Airlines Shen Fei, China Airlines Xifei, and Hongdu Airlines in 2024 to the corresponding PE multiples of 29 times, 54 times, and 91 times, respectively. The average PE of the comparable company's current market value corresponding to 2024 net profit is 58 times. If Hongdu Airlines, which has higher PE, is excluded, the average PE of the comparable company is 42 times, and the company's net profit to mother in 2024 is 38 times. Considering that in addition to military products, the company also has the potential to develop low-altitude economic aircraft, a higher PE level should be given. Assuming that the company is given 40-45 times PE, it is predicted that the company's reasonable market value range in 2026 is 438-49.2 billion yuan.

Risk warning

1. Currently, the number of military helicopters in China continues to rise. New demand is constantly increasing, and the replacement of old ones is progressing at an accelerated pace. Among the two major OEMs under the company, Changfei Group/Aviation is in a painful period of product adjustment, and order demand for Changfei Group/Aviation's original main model has fluctuated greatly.

Although development of subsequent models is already underway, the overall revenue and net profit contribution of Changfei Group/Aviation may be difficult to reflect in the near future. In the short term, the company will still use Hafei Group/Aviation products as the main model, and the company's overall performance increase is uncertain.

2. China's relevant policies in the field of civil aviation continue to advance, but due to relevant infrastructure restrictions and some objective flight requirements that have not yet been fully resolved, there is great uncertainty about the growth rate of demand for civil helicopters in the short term.