1H24 results are in line with market expectations

The company announced 1H24 results: 1H24 achieved operating income of 20.329 billion yuan, YoY +3.95%; realized net profit to mother of 0.657 billion yuan, YoY +16.25%. Looking at a single quarter, 2Q24 achieved operating income of 11.874 billion yuan, YoY +2.25%, QoQ +40.44%; net profit to mother of 0.385 billion yuan, YoY +16.67%, and QoQ +41.18%. The company's performance is in line with market expectations.

Development trends

Revenue from aviation products has been rising steadily, and it is expected that the annual growth target will be successfully achieved. 1) 1H24's aviation product revenue was 20.076 billion yuan, YoY +3.20%. 2) According to the company's 2023 annual report, the company's annual revenue target for 2024 is 45.1 billion yuan, and 1H24 has completed 45.08%. We believe that with the acceleration of aviation equipment upgrades and the continuous development of the international and domestic commercial aviation market, the company's production and delivery are expected to continue to grow steadily, and the annual performance target is expected to be successfully completed.

Expense ratios were well controlled during the period, and cash outflows from operating activities narrowed. 1) The gross margin/net margin of the 1H24 company was 5.89%/3.23% respectively, a year-on-year decrease of 0.63ppt/increase of 0.34ppt. We believe that the slight decline in gross margin was mainly due to changes in the company's product structure; other benefits from tax incentives and other factors increased net interest rates. 2) The 1H24 company's cost rate for the period was 2.75%, a slight increase of 0.35ppt over the previous year, and the cost rate control for the period was reasonable. 3) The net cash flow from 1H24's operating activities was 13.152 billion yuan, a year-on-year narrowing of 3.877 billion yuan, and operating cash flow improved markedly.

The core platform for large and medium-sized aviation equipment, the accelerated development of large domestic aircraft has opened up room for long-term growth for the company.

1) The company is under the aviation industry's core aircraft manufacturing and maintenance assets such as Xifei, Shaanxi, and Tianfei, and is a domestic large and medium-sized aviation equipment industrialization platform. 2) According to the company's announcement, the aircraft parts products developed by the company have covered all major domestic commercial large and medium-sized aircraft models, and is the largest supplier of airframe structures for the C919, ARJ21, AG600, and Xinzhou series aircraft. At the same time, the company actively participated in international subcontracting and undertook the airframe structure manufacturing work for models such as the Boeing 737 and Airbus A320 series. We believe that the company is expected to benefit deeply from the upgrading of large and medium-sized aviation equipment and the development of the international commercial aviation industry. At the same time, as the largest supplier of C919 airframe structures, it is expected to benefit from the acceleration of the development of large aircraft and open up room for long-term growth.

Profit forecasting and valuation

We maintain our 2024/2025 profit forecast of 1.063/1.371 billion yuan, and our current stock price corresponds to 2025 48.0x P/E. We maintain our outperforming industry rating and maintain a target price of 27.72 yuan, corresponding to 56.2x P/E in 2025, with a potential increase of 17.1%.

risks

1) Macroenvironmental and policy risks; 2) Risks that orders and deliveries fall short of expectations.