Core views

The company disclosed its 2024 quarterly report and 2023 annual report. 2024Q1 achieved operating income of 0.044 billion yuan, an increase of 71.79% over the previous year, mainly due to an increase in aviation process equipment revenue; net profit to mother of 0.004 billion yuan, a year-on-year decrease of 27.27%; mainly due to changes in product prices and structure, a decrease in gross margin, and an increase in management costs and R&D expenses. In 2023, revenue was 0.456 billion yuan, up 12.65% year on year; net profit to mother was 0.134 billion yuan, up 9.63% year on year. The company's main business covers the aerospace field, focusing on R&D and manufacturing of aerospace products, aerospace process equipment, aviation products, satellite communications and measurement and control testing equipment. With the steady progress of a number of major industrial projects such as China's lunar exploration project, next-generation launch vehicles, manned space station construction, Mars exploration, solar exploration, and the Beidou satellite navigation system, combined with the development of emerging strategic fields such as large domestic aircraft, commercial aerospace, and low-altitude economy, the company's performance is expected to continue to be unleashed.

occurrences

The company disclosed its 2024 quarterly report. 2024Q1 achieved operating income of 0.044 billion yuan, an increase of 71.79% year on year, mainly due to an increase in aviation process equipment revenue; net profit to mother of 0.0.4 billion yuan, a decrease of 27.27% year on year; net profit after deducting non-return to mother - 2.1007 million yuan, a year-on-year decrease of 613.90%, mainly due to changes in product prices and structure, and an increase in management expenses and R&D expenses.

The company disclosed its 2023 annual report. In 2023, it achieved operating income of 0.456 billion yuan, a year-on-year increase of 12.65%; net profit to mother of 0.134 billion yuan, an increase of 9.63%; net profit after deducting non-attributable net profit of 0.098 billion yuan, a year-on-year decrease of 14.47%.

Brief review

1. The aerospace sector maintains a high boom, and the company's performance continues to be explained

Overall, the company's orders are stable, the aerospace sector has maintained a high boom, short-term product prices and structural changes, operating income continues to grow, profitability has declined, and medium- to long-term performance can be expected to continue to be released. 2024Q1 achieved operating income of 0.044 billion yuan, an increase of 71.79% year on year, mainly due to an increase in aviation process equipment revenue; net profit of 0.0.4 billion yuan to mother, a decrease of 27.27% year on year; net profit after deducting non-return to mother - 2.1007 million yuan, a year-on-year decrease of 613.90%, mainly due to changes in product prices and structure, a decrease in gross margin, and an increase in management expenses and R&D expenses. In 2023, revenue of 0.456 billion yuan was achieved, up 12.65% year on year; net profit to mother was 0.134 billion yuan, up 9.63% year on year; net profit without return to mother was 0.098 billion yuan, down 14.47% year on year.

By section, in 2023, the aerospace and other communication equipment manufacturing industry was the main source of the company's main business revenue, up 14.24% from the previous year, and the comprehensive gross margin of the product was 51.19%, down 8.47pcts from the previous year. The overall gross margin of the product declined mainly due to changes in the product structure and the decline in downstream host or overall customer prices. In 2023, the operating revenue of aerospace and communication products, aviation products and aerospace process equipment increased by 34.06%, decreased by 33.70%, and increased 6.05%, respectively; gross margins were 56.13%, 43.50%, and 42.69%, respectively, and decreased by 8.56 pcts, 6.46 pcts, and 13.47 pcts, respectively.

2. Two-wheel drive in the aerospace field, combined with emerging growth points such as large domestic aircraft, commercial aerospace, and low-altitude economy. As modern emerging industries such as commercial aerospace and low-altitude economy are listed as a key development direction in China, the company closely follows national policy guidelines and actively expands product applications and business segments. Based on its original core technical capabilities, it targets the needs of emerging industries such as large domestic aircraft, commercial aerospace, and low-altitude economy, and is stepping up efforts to carry out high-quality and low-cost R&D research on core products in emerging industries.

In terms of aerospace products, based on its own advantages, the company focuses on building comprehensive development capabilities such as design, manufacturing, assembly, commissioning, testing and environmental testing of products such as aerospace microwave communications, space-borne structural mechanisms, inertial devices, solar wings, etc., to form intelligent, batch, and highly competitive comprehensive development advantages to meet major aerospace engineering support needs represented by manned space, high-throughput satellites, military satellites, and low-orbit Internet satellites. In terms of aerospace process equipment, the company focuses on developing integrated, automated, intelligent and other aerospace process equipment products, providing integrated chemical equipment, automated production lines and assembly lines with autonomous and controllable key technologies, and becoming a provider of high-end process equipment and overall solution solutions throughout the life cycle. At present, products such as the C919 automatic positioning and mobile positioning system, wing wall panel molding tooling, and various types of aircraft and drone fuselage structural molding tooling have been completed. In terms of aviation products, the company will give full play to its advantages, build automated and intelligent production lines based on independent innovation, increase large-scale mass production capacity, and provide a complete set of solutions for the design, manufacture and assembly of high-precision, lightweight, and structurally integrated advanced composite parts and metal parts products in aviation and related fields. In terms of satellite communications and measurement and control testing equipment, the company aims at market opportunities such as defense equipment construction, low-orbit satellite Internet, commercial aerospace, etc., and strives to develop into a first-class domestic supplier of satellite communication products, ground monitoring and control products and special test equipment, with the R&D and manufacturing of “Tianshifu” subsystem products as the core, based on independent development and relying on a complete industrial chain.

3. Actively promote the construction of industrial parks and focus on new quality productivity

Accelerate the construction of the Universal Aviation Industrial Park. The industrial park plans industrialization capabilities for satellite communication antennas, measurement and control test antennas, data link products, high-end composite components, and large-scale high-precision testing equipment. By the end of 2023, the Huanyu Aviation Industrial Park had completed construction of more than 0.08 million square meters. Procurement of relevant high-end R&D, production and testing equipment was being stepped up. Some equipment had already been installed and commissioned, and the increase in the industrialization capacity of the Aviation Industrial Park in the satellite communications and measurement and control testing equipment sector and composite material product sector had begun to bear fruit.

To promote the construction of the subsidiary Zigong Huanyu Industrial Park, Zigong Huanyu has purchased 132 acres of land to build drone composite parts and complete machine structure development and industrialization capabilities. It mainly builds manufacturing capabilities for composite parts, drone components, and complete aircraft assembly and testing capabilities. The subsidiary Zigong Huanyu is actively participating in the supporting needs of the drone industry chain, speeding up the construction of aviation product production capacity, and is expected to be partially put into operation within 2024.

4. Strengthen technology development and independent innovation

In terms of technology research and innovation, the company has always been committed to providing customers in the aerospace field with high-tech products and services. Through years of continuous R&D investment, independent research and technology accumulation, the company has formed a highly characteristic and market-competitive business segment. In 2023, the company invested 48.1117 million yuan in R&D, an increase of 6.55% over the previous year; it had 148 R&D personnel (+33.33%), accounting for 19.27% of the total number of people in the company. In 2023, the company applied for 7 new invention patents and 15 utility model patents, mainly to further enhance the advantages of the company's core technology; the company obtained a total of 72 authorized patents, including 21 invention patents and 51 utility model patents. Through years of technical research and production practices, the company has continuously improved its technical level in process design, machining parameter selection, material molding, tooling design and manufacturing, etc., and has formed 11 core technologies including high-precision, high-frequency band antenna feeder component design simulation, manufacturing, assembly and debugging technology, and space-borne difficult waveguide slot array antenna manufacturing and welding technology.

5. The company launched a share repurchase to implement the “Improve Quality, Efficiency and Value Return” action plan. The company announced in February 2024 that it intends to use part of the IPO's overfunded capital to repurchase the company's shares through centralized bidding. The total repurchase capital is not less than 50 million yuan or 0.1 billion yuan, the repurchase price is no more than RMB 30 yuan/share, and the repurchase of shares will be used for employee stock ownership plans or share incentives at appropriate times in the future. By the end of April 2024, 2.4725 million shares had been repurchased (0.61% of total share capital). As of June 30, 2024, the company has repurchased a total of 2.4725 million shares through the Shanghai Stock Exchange trading system, accounting for 0.61% of the company's total share capital. The highest price of the repurchase transaction was 22.37 yuan/share, the lowest price was 17.94 yuan/share, and the total amount of capital paid was approximately RMB 49.9963 million (not including transaction fees such as transaction fees).

6. Profit prediction and investment rating: Two-wheel drive in the aerospace sector, related manufacturing and supporting industries can be expected to follow up, giving purchasing rating companies to focus on R&D and manufacturing of aerospace products, aerospace process equipment, aviation products, satellite communications and measurement and control testing equipment, etc., based in the aerospace sector at a high development stage, and also in emerging fields such as large domestic aircraft, commercial aerospace, and low-altitude economy. Continue to step up technology development and independent innovation, actively promote the construction of industrial parks, continue to expand production capacity, and focus on new quality productivity.

Sales of the company's main products have obvious seasonal characteristics. The revenue confirmed in the first quarter of each year accounts for a low proportion of the main business revenue for that year, accounting for less than 6% in 2022 to 2023. Revenue recognized in the fourth quarter of each year accounts for a high proportion of the main business revenue for that year. The company's main customers are various subsidiaries of Aerospace Science and Technology, China Aviation Industry, China Telecom, and COMAC. Affected by the above group and enterprise settlement methods and cost pre-settlement management, they usually accelerate the project acceptance and settlement process in the second half of the year. Therefore, the company's main business revenue is clearly seasonal. Revenue in the second half of the year, especially in the fourth quarter, accounts for a large share of annual revenue. This situation is in line with the seasonal characteristics of the military industry's overall revenue.

At the end of 2023, the company's inventory increased by 48.39% year-on-year, mainly due to an increase in raw materials and products. Currently, the company mainly uses the principle of “determine production by sales, determine production by production” for inventory procurement. Inventory mainly consists of various raw materials, products and products required for production and delivery according to customer orders. The company's main inventory has corresponding sales orders; however, the company also prepares goods in advance to ensure timely delivery of products, or purchases some raw materials in advance according to expected orders. Taken together, the company's 2024 performance is expected to maintain rapid growth.

We are optimistic about the company's future prospects. The company's net profit from 2024 to 2026 is estimated to be 1.69 million yuan, 2.11 million yuan, and 266 million yuan, respectively, with year-on-year increases of 25.42%, 25.45%, and 26.02%, respectively. Corresponding PE from 24 to 26 will be 38.89, 31.00, and 24.60 times, respectively. This is the first coverage and a purchase rating.

Risk analysis

1. If the main business falls short of expectations, there is a risk that the profit assumption will not be established.

2. If the sales price of the company's products falls in the future due to factors such as increased market competition and major adverse changes in market demand, or production costs increase due to rising raw materials and labor costs, the company's gross margin space may be compressed, and the company will face the risk of a decline in gross margin. If the company's gross margin falls by 2 percentage points, 4 percentage points, and 6 percentage points in 2024-2026, the expected net profit to mother in 2026 will drop from 0.266 billion yuan to 0.248 billion yuan, 0.229 billion yuan, and 0.211 billion yuan, respectively.

3. Industrial park construction and R&D results fall short of expectations: The company continues to increase investment in industrial park construction and R&D. If R&D results fall short of expectations, it will significantly affect future market expansion and product upgrading, thereby affecting performance release.

4. Market competition intensifies: With the further advancement of military and civilian integration, the threshold for the military industry is gradually lowered, the company's traditional areas of advantage may be penetrated, and competition in emerging fields will become more intense, thus affecting the company's revenue and profitability.

5. Military orders fall short of expectations: Military products involve the special nature of national defense and security. The country has strict control over military procurement, and military procurement is highly planned. If model equipment procurement plans fall short of expectations, the performance of relevant enterprises in the industrial chain will be affected.