Incident: The company released its 2024 semi-annual report. In the first half of 2024, it achieved operating income of 0.485 billion yuan, an increase of 27.04% year on year; net profit to mother was 0.216 billion yuan, up 17.44% year on year; net profit after deducting non-return to mother was 0.207 billion yuan, up 18.15% year on year.

Revenue from the main business grew steadily, and profitability was under pressure in the short term. 1) On the revenue and profit side, overall, 2024Q2 achieved revenue of 0.238 billion yuan, an increase of 21.71%; realized net profit to mother of 0.101 billion yuan, an increase of 6.32%. During the reporting period, the company's batch model production and maintenance business grew steadily, small-batch trial production orders increased one after another, and the scope of model research and development tasks expanded.

By product, 2024H1's sales revenue is 0.464 billion yuan, with a gross profit margin of 59.25%; parts processing revenue is 0.021 billion yuan, with a gross profit margin of -5.84%, which is expected to rectify rapidly with the release of production capacity in the later stages. 2) In terms of profitability, 2024H1 achieved a gross profit margin of 56.27%, a year-on-year decrease of 1.80pct; a net sales margin of 42.10%, a year-on-year decrease of 5.3 pcts.

4) On the cost side, 2024H1's three fees accounted for 8.94%, an increase of 3.35 pct over the previous year. Among them, sales expenses were 0.008 billion yuan, an increase of 18.07%; financial expenses were 0.003 billion yuan, mainly due to amortization of unconfirmed financing expenses and increased loan interest and discount fees during the reporting period; management expenses of 0.032 billion yuan, an increase of 65.18% over the previous year, mainly due to the increase in remuneration due to the expansion in the size of holding subsidiaries and increased management personnel during the reporting period, and the increase in depreciation of the usage rights assets of Shanghai Ruihuasheng Co., Ltd. and the rental of office space included in management expenses To you.

Continue to invest at a high level of R&D, sufficient orders on hand, and active preparation for production and stocking. 1) At the R&D level, 2024H1's R&D expenses were 0.033 billion yuan, an increase of 0.26%. In the main business of special functional materials, stealth material product applications are gradually expanding from engines to airframes, ships, etc., and small-batch trial delivery of compatible stealth, thermal resistance/ceramic-based composites is being accelerated.

2) According to forward-looking indicators, as of 2024Q2, the company's advance payments were 0.008 billion yuan, up 127.77% from the end of the same period last year, mainly due to the current prepayment of materials related to Huaqin Technology and Huaqin Optoacoustics; inventory was 0.199 billion yuan, an increase of 59.01% over the end of the same period last year, mainly due to an increase in sales orders in the current period and an increase in the cost of issuing goods and contract performance; contract debt was 0.018 billion yuan, up 24.49% from the end of the same period last year, a record high, indicating that the company is in charge There are sufficient orders; the project under construction was 0.757 billion yuan, an increase of 65.8% over the end of the same period last year, mainly due to the Huaqin Technology Fund-raising Project and the construction of the Huaqin Airlines production line. 3) In terms of manual orders, the company disclosed contracts for batch production of stealth materials on January 17, January 30, and July 4, 2024, respectively. The amount including tax was 0.31 billion yuan, 0.332 billion yuan, and 0.132 billion yuan respectively. The company has abundant in-hand order reserves, which are expected to have a positive impact on performance.

The subsidiary's business is progressing smoothly, and capacity construction continues to advance. 1) In terms of major subsidiaries, during the reporting period, ① Huaqin Optoelectronics: Achieved operating revenue of 1.0196 million yuan. The company's acoustic metamaterials gradually entered the engineering stage, actively continued to expand business in the fields of acoustic laboratories, power plant noise control, energy and chemicals, wind tunnel laboratories, building sound absorption, rail transit, etc.; ② Huaqin Aviation Development:

Achieved operating revenue of 23.7596 million yuan. Production line construction is currently underway, and some production lines have begun first product verification and trial production; ③ Shanghai Ruihuasheng: Achieving revenue of 0.5179 million yuan, the company is actively developing the “R&D and industrialization project for ceramic-based composites and their structural components for aero engines”, and strives to achieve trial production of some production lines in the second half of 2024. 2) Progress of important projects under construction: As of 2024Q2, the company's new material park fund-raising project accounted for 45.1% of the budget; the total investment in the Shenyang Huaqin aviation parts intelligent manufacturing project accounted for 59.8% of the budget; and the total investment in the R&D and industrialization project of ceramic-based composites for aero engines and their structural components accounted for 42.1% of the budget.

The temperature-resistant stealth faucet has an obvious first-mover advantage, and the new material flagship strategic layout is taking shape. 1) Short-term first-mover advantage: The core stealth business benefits from booming demand for front-end and maintenance, and product iteration drives an increase in the value of a single unit. ① Front assembly and maintenance demand boom: Advanced aviation equipment has led to high revenue growth, strong consumable attributes combined with practical training, and continued market growth and sustainability after extensive maintenance; ② Increased value of individual units: the company's mass-produced products have formed a market barrier, and the product line has been iteratively upgraded in the direction of stealth structure/multi-functional compatibility, increasing the value provided to customers with single equipment. ③ Large potential for scale effects: The company has formed stickiness with customers through industrialization, and has rich product series and in-hand order reserves. In the future, along with lower cost rates and increased capacity utilization, the company's scale effect flexibility is expected to be released at an accelerated pace. 2) Mid-term business expansion: integrated into the aviation development cooperative industry system, and vertical layout of ceramic-based and machining operations. ① Ceramic-based composites: The establishment of Shanghai Ruihuasheng's forward-looking ceramic-based composites business is expected to open up a second growth curve for the aviation development industry; ② Aviation parts processing: The establishment of the Huaqin Aviation Publishing Bureau's aviation parts processing business, and the establishment of Guiyang Company and participation in Shenyang Ruite are deeply tied to downstream customers. 3) Long-term civilian market expansion: transformation of military technology into civilian applications. ① Protective materials: The company relies on the transformation of military technology into civilian applications to develop a series of civilian products such as anticorrosive materials and high-efficiency heat-resistant materials to open up new market opportunities. ② Acoustic meta-structural materials: Huaqin Optoelectronics was established, and business progress has been made in the fields of acoustic laboratories, sound absorption materials for buildings, rail transit, etc. The core products are gradually entering the application stage, and there is great potential for future development in the field of low-frequency sound stealth for underwater vehicles.

Investment advice: We maintain profit forecasts. The company's revenue for 2024-2026 is 1.215/1.659/2.08 billion yuan, net profit to mother is 0.507/0.671/0.858 billion yuan, corresponding EPS is 2.60/3.45/4.41 yuan respectively, and the corresponding PE is 28.5X/21.5X/16.8X respectively. The company's first-mover advantage is obvious, batch production brands continue to increase, and actively expand the product matrix around the main business. The performance is expected to continue to grow and maintain the “buy” rating ? Risk warning: risk of fluctuations in military orders, risk of falling gross margin due to product price reduction, risk of products falling short of expectations during trial production, risk of performance predictions and valuation judgments falling short of expectations.