Incident: The company released its 2024 semi-annual report. In the first half of the year, it achieved operating income of 20.329 billion yuan, an increase of 3.95% year on year; realized net profit to mother of 0.657 billion yuan, an increase of 16.25% year on year.

Net profit to mother grew rapidly, and the annual target is expected to reach 2024H1 as scheduled. The company achieved operating income of 20.329 billion yuan (+3.95%), net profit of 0.657 billion yuan (+16.25%), and net profit after deducting non-return to mother of 0.622 billion yuan (+14.93%). Looking at a single quarter, 24Q2 achieved revenue of 11.874 billion yuan, +2.25% /month-on-month +40.44%; net profit to mother was 0.385 billion yuan, +16.67% /month-on-month +41.18%. In the first half of the year, the company continued to focus on the aviation industry. The revenue side maintained steady growth, and the profit side grew at an impressive rate, which may indicate the arrival of an inflection point in profit.

In 2024, the company expects to achieve operating income of 45.1 billion yuan, total labor productivity of 0.4614 million yuan/person, complete various military aircraft development and mass production delivery tasks according to the plan, organize and carry out C919 production line production capacity construction and first system assembly development for the A321 airframe project, actively participate in domestic and foreign subcontract project bidding, and complete the delivery of major components and parts for civil aircraft products.

Continuously optimize operating efficiency and maintain stable profitability

In terms of profitability, the company's gross sales margin in the first half of the year was 5.89% (-0.63pct), the net margin was 3.23% (+0.34pct), and the period expense ratio was 2.75% (+0.34pct), of which the sales/management/R&D expenses ratio was 1.11% (+0.28pct)/2.04% (-0.26pct)/0.21% (-0.12pct), respectively. The company's profitability remained stable and operating efficiency remained optimized.

In addition, at the end of 2024H1, the company's accounts receivable were 23.445 billion yuan, up 31.92% from the beginning of the period, mainly due to increased product sales in the current period and unrecovered payment for some products; inventory was 23.829 billion yuan, up 1.69% from the beginning of the period; and contract liabilities were 11.063 billion yuan, a decrease of 41.16% from the beginning of the period, mainly due to the carry-over revenue of some pre-received purchases in the current period. It can be seen from this that the company continues to actively prepare goods and prepare production to guarantee the completion of tasks throughout the year.

The company expects a significant year-on-year increase in related transactions. In the first half of the year, 27.60% of the estimated total amount of related transactions occurred. The company disclosed that the total amount of related transactions in 24 was 28.16 billion (up 21.72% from the estimated value in '23), of which it is expected to achieve a related sales volume of 0.746 billion (up 10.28% from the forecast value in '23); it is expected to achieve 24.785 billion in related purchases (up 22.09% from the forecast value in '23); it is expected to receive related party services 2.05 billion (up 27.67% from the 23 forecast); estimated to provide services to related parties at 0.465 billion (down 11.04% from the 23 forecast). The total amount of actual transactions between the company and related parties under the same actual controller in the first half of 2024 was 7.773 billion yuan, accounting for 27.60% of the total estimated total for the whole year.

Profit forecast: In view of the company's dominant position in aviation equipment manufacturing, the company's net profit from 2024 to 2026 is estimated to be 1.129, 1.454, and 1.816 billion yuan respectively, corresponding EPS of 0.41, 0.52, and 0.65 yuan, respectively, and the corresponding PE is 58.34, 45.30, and 36.27 times, respectively, maintaining the “recommended” rating.

Risk warning: macroeconomic development risk, production and operation risk, defense budget falling short of expectations.