Leading domestic military and civilian aircraft, demand volume and implementation of equity incentives drive high-quality performance growth. As an integrated base for the development and maintenance of large and medium-sized military and civilian aircraft in China, the company has gone through two stages of development: 1) integrating innovative resources, focusing on the main vehicle business (2008-2020): After three asset restructuring and resource integration, the company focused on the main military aircraft and civilian aircraft supporting business, and built a full industry chain layout covering R&D and design, manufacturing, and maintenance services. 2) Promote quality and efficiency, and continue to deepen reforms (2021 to date). Starting in 2020, the company deepened state-owned enterprise reform actions and implemented the first equity incentive in 2023. In 2023, the company achieved revenue/net profit of 40.301/0.861 billion yuan (+7.0%/64.4%). Thanks to the continuous expansion and serialization of the main aviation products business, the company continues to promote cost reduction and efficiency, and the performance is expected to continue to achieve high-quality growth.

The company's military transport aircraft and bomber products have an outstanding strategic position, and the serial development of the core platform opens up long-term space for military trade. 1) Transport aircraft: Military transport aircraft are an important sign of a country's strategic delivery capability. Compared with the US, Russia, and China, there is more room for strategic transport aircraft. ① Serialized development: the company's fist product is the main transport aircraft of China's air force and the core modification platform for various special aircraft; the Yun-20 strategic transport aircraft assembled by the company fills the gap in large-scale domestic transport aircraft development, and is expected to become a new generation special aircraft modification platform in the future. ② Promotion of military trade work: The Aviation Industry Group is actively deploying military trade work for aviation mainframes. In February 2024, Yun-20/Yun-9E appeared at the Saudi Defense Exhibition. The company's military trade business is expected to achieve a new breakthrough at the end of the “14th Five-Year Plan”. 2) Bombers: The company's Bomber-6 aircraft fills the gaps in China's bomber manufacturing, and has derived multiple models on this basis, with strong expandability and scope economy; strategic bombers are an important part of the triad nuclear strike system, and new domestic strategic bombers are expected to be relayed, and the company will continue to benefit.

As a core structural supplier for domestic aircraft, it continues to benefit from the rapid transfer of domestic aircraft to production and delivery; the international subcontract business is deeply tied to Boeing Airbus and is expected to continue to contribute to increased performance. 1) The large domestic aircraft industry chain is facing an inflection point: ① Industry inflection point: C919 has entered the stage of large-scale commercial operation and already has a foundation for mass production and localization; ② Supply and demand matching: inventory updates and incremental gap demand are prominent, and it is expected to achieve a C919 delivery capacity of 100 aircrafts/year around 2030.

2) Domestic civil aircraft support: ① C919: The company undertakes more than 50% of the workload of most parts of the C919 aircraft, and priority is given to benefiting from C919 emissions. ② ARJ21: The company undertakes more than 60% of the total manufacturing volume of the ARJ21 aircraft. ③ “Xinzhou” series: “Xinzhou” 60 has been developed into a serial platform, and the company participated in R&D and manufacturing. ④ AG600: The AG600 amphibious aircraft has entered an important stage of development and batch production, and the company undertakes more than 50% of the airframe structure tasks. 3) International subcontracting business: The company undertakes the manufacturing of Boeing 737 series aircraft tail, Boeing 747 aircraft components, Airbus A320/A321 series aircraft wing, airframe and other products, and is deeply tied to aviation manufacturing giants such as Airbus Boeing to actively build a world-class wing manufacturing center. The international subcontract business is expected to continue to contribute more.

Profit forecast and investment suggestions: We expect the company's 2024-2026 revenue to be 46.082/52.722/60.532 billion yuan, net profit to mother is 1.082/1.349/1.669 billion yuan, corresponding EPS is 0.39/0.48/0.60 yuan, and the corresponding PE is 62.0/49.7/40.2X respectively. As a leading military and civilian aircraft, the military aircraft engine business will benefit from serial development and the increase in military trade sentiment. The company's performance is expected to grow as mass production of domestic civil aircraft accelerates and the overseas civil aviation boom recovers. The first coverage gives a “buy” rating.

Risk warning: risk of fluctuations in military orders, risk of developing products falling short of expectations in batch production, risk of performance predictions and valuation judgments falling short of expectations, risk of untimely updating of research report usage information.