occurrences

On July 30, 2024, the company issued two announcements: “Jiangxi Guoke Military Industry Group Co., Ltd. 2024 Restricted Stock Incentive Plan (Draft)” and “Jiangxi Guoke Military Group Co., Ltd. Notice Concerning the Company's Investment in “Aerospace Power Construction Projects”, covering the two directions of equity incentives and project construction, respectively.

The incentive targets are mainly technical and business backbone, which is beneficial to the long-term development of the company. The total number of incentive targets involved in this incentive plan was 200 people, accounting for 23.26% of the company's total number of employees at the end of 2023. Of these, 195 were technical/business backbone, indicating that the core purpose of this incentive is to improve technical and business capabilities, which is beneficial to the long-term development of the company.

The company-level assessment is more comprehensive, which is conducive to the overall development of the company

The company plans to invest 0.343 billion yuan in aerospace power construction projects, expand into the aerospace engine assembly business, carry out scientific research, production and operation of space engines, and transform from an engine supplier to an engine assembly company. According to our analysis in the “State-owned Enterprises with Local Advantages in the Field of Aerospace Bottlenecks” report, charges, etc. account for about 45% of the total engine assembly value. The company's expansion into the downstream solid rocket engine assembly process is equivalent to more than doubling the application market space and opening up space for the company's development.

The market space is broad and profit is growing steadily. We expect the company to achieve operating income of 1.296/1.635/2.041 billion yuan in 2024-2026, up 24.55%/26.18%/24.86% year on year, and a three-year CAGR of 25.19%; net profit to mother of 0.193/0.263/0.342 billion yuan, up 36.84%/36.81% year on year, three-year CAGR of 34.46%, EPS 1.10/1.50/1.95 yuan/share, corresponding PE is 40x/29x/22x, respectively. In view of the company's deep technical skills, broad market space, and scarcity of solid engine standards, it was given a “buy” rating.

Risk warning:

Risk of falling military orders; risk of technology research and development falling short of expectations; risk of falling gross margin of military products; risk of increased industry competition; risk of production safety; risk of transformation failure.