Incident: The company released its 2024 mid-year report on August 21. 1H24 achieved revenue of 0.17 billion yuan, YoY +55.3%; net profit due to mother 0.02 billion yuan, YoY +28.7%; net profit without return to mother 0.01 billion yuan, YoY +6.5%. Revenue growth was better than market expectations. It mainly benefited from revenue growth in the aviation process equipment business.

Our comprehensive review is as follows:

2Q24 revenue surged 50% year over year. Looking at a single quarter, the company achieved revenue of 0.04 billion yuan, 0.12 billion yuan, YoY +71.8%, and +50.3% respectively; net profit to mother of 0.004 billion yuan, 0.019 billion yuan, YoY -27.3% and +54.3% respectively. The company maintained rapid revenue growth for 2 consecutive quarters. In terms of profitability, the company's 2Q24 gross margin decreased by 21.77ppt to 38.6% year on year; net margin increased 5.10ppt to 18.2% year over year. The company's 1H24 comprehensive gross margin decreased by 22.22ppt to 37.9% year over year, mainly due to factors such as operating cost increase (142%) greater than revenue increase (55%) and changes in product structure; net margin increased 1.23ppt to 16.2% year over year, or mainly benefited from improved cost control capabilities.

Expense control capabilities have improved; receivables/inventory/contract liabilities at the end of 24Q2 all increased compared to the beginning of the year.

On the cost side, the company's expenses rate during the 1H24 period was 29.1%, a year-on-year decrease of 11.05ppt. Among them: 1) the sales expense ratio was 3.3%, a year-on-year decrease of 0.97ppt; 2) the management expense ratio was 11.0%, a year-on-year decrease of 4.10ppt; 3) the R&D expense ratio was 15.1%, a year-on-year decrease of 6.74ppt; R&D expenses were 0.03 billion yuan, an increase of 7.4%; 4) the financial expense ratio was -0.3%, compared to -1.1% in the same period last year. By the end of 2Q24, the company: 1) accounts receivable and notes were $0.43 billion, up 11.4% from the beginning of the year; 2) inventory was 0.17 billion yuan, up 32.2% from the beginning of the year, mainly due to the increase in raw materials and products; 3) Contract liabilities were 0.004 billion yuan, which was 0.002 billion yuan in the same period last year, mainly due to additional advance receipts from China Aviation Development Shanghai Commercial Aircraft Engine Manufacturing Co., Ltd.; 4) Monetary capital of 0.13 billion yuan, down from the beginning of the year 54.1%, mainly due to the implementation of cash dividends and stock repurchases; 5) Net cash flow from operating activities was -0.07 billion yuan, compared to -0.09 billion yuan in the same period last year.

Actively develop businesses in new productivity fields such as satellite internet, large aircraft, and low-altitude economy. 1) Satellite Internet: Since 2024, the company has completed the development of the “Thousand Sails” constellation 4.5 meter measurement and control antenna feeder products, and achieved complete success in the first satellite and ground chain construction work. At the same time, it also provides development and engineering services for aerospace products, satellite communication, and measurement and control products for many customers, including Shanghai Yuanxin, and is expected to meet high market demand in the future. 2) Big aircraft: On April 3, 2024, the company announced that its subsidiary Feiyu won the bid for the “C929 Project Composite Tooling Framework Agreement Project”, with an order amount not exceeding 0.175 billion yuan. At the same time, various types of process equipment for the C919 assembly line are being developed to help mass production of large domestic aircraft.

Investment advice: The company has been deeply involved in the aerospace field for 20 years and is a national-level specialized and innovative “little giant”.

Benefiting from the increasing demand for aerospace equipment and the development of new productivity fields such as satellite internet, large aircraft, and low-altitude economy, the company's performance may continue to rise in the next few years. We estimate that the company's net profit from 2024 to 2026 will be 0.17 billion yuan, 0.237 billion yuan, and 0.326 billion yuan, respectively. The current stock price corresponding to 2024-2026 PE is 38x/27x/20x. Maintain a “Recommended” rating.

Risk warning: downstream demand falls short of expectations; risk of product price reduction, etc.