Key points of investment

Incident: The company released its 2024 semi-annual report, and its performance for the first half of 2024 increased 16% 1) 2024H1 performance: 2024H1 achieved operating income of 20.329 billion yuan, up 3.95% year on year; net profit to mother 0.657 billion yuan, up 16.25% year on year; net profit after deducting non-return to mother 0.622 billion yuan, up 14.93% year on year. The weighted average return on net assets was 3.89%, an increase of 0.42pct over the previous year. The results are in line with market expectations.

2) 2024Q2 performance: 2024Q2 achieved operating income of 11.874 billion yuan, up 2.25% year on year and 40.44% month on month; net profit to mother was 0.385 billion yuan, up 16.67% year on year and 41.18% month on month.

3) Subsidiaries: 2024H1 Aviation Industry Shaanxi Fei achieved revenue of 5.037 billion yuan, an increase of 19.34% year on year; net profit of 0.141 billion yuan, a decrease of 22.12% year on year.

2024Q2 net interest rate increased year-on-month; lean management achieved significant management expense ratio record low 1) In terms of profit margin: 2024H1 gross margin was 5.89%, a year-on-year decrease of 0.63pct; net interest rate was 3.23%, up 0.34pct year-on-year. 2024Q2 gross margin was 4.36%, down 1.48 pct year on year and 3.69 pct month on month; net margin was 3.24%, up 0.4 pct year on year, up 0.02 pct month on month.

2) In terms of period expenses: The cost rate during 2024H1 was 2.75%, an increase of 0.35pct over the previous year. Among them, the sales expense ratio was 1.11%, an increase of 0.28 pct; the management expense ratio was 2.04%, a year-on-year decrease of 0.25pct; the R&D expense ratio was 0.21%, a year-on-year decrease of 0.11pct; and the financial expenses ratio was -0.61%, an increase of 0.44pct year on year.

3) On the balance side: 2024H1's notes and accounts receivable were 23.588 billion yuan, an increase of 31.23% over the end of 2023, mainly due to increased product sales and unrecovered payment for some products; the company's contract liabilities were 11.063 billion yuan, a decrease of 41.16% from the end of 2023; and taxes payable were 0.105 billion yuan, a decrease of 90% over the previous year.

The “2323” balanced production stage target was achieved in the first half of 2024, and the civil aircraft business blossomed 1) Management improvement: The company successfully achieved the “2323” balanced production stage target and exceeded the factory test flight work. Focus on building a “3 strong, 3 down, 3 improvement” management model for production management, production costs, and production capacity.

2) Civil aircraft business: Production cycle compression experience expanded to civil aircraft. The AG600 completed small-batch production ahead of schedule, the production capacity of the C919 project increased steadily, the Xinzhou 60 fire extinguisher completed evidence collection, and the international subcontract business achieved a mission point.

Investment advice and profit forecasting

As a marketing platform for military transport aircraft, bombers, and special aircraft, the company's military and civilian business went hand in hand, benefiting from the acceleration of mass production of large domestic aircraft, and achieved remarkable results in reducing costs and increasing efficiency through innovative management models. In 2024-2026, the company's net profit to mother is expected to be 1.12, 1.41, and 1.76 billion, up 30%, 26%, 25% year-on-year; PE is 58, 46, 37 times; PS is 1.4, 1.2, and 1.0 times; maintaining a “buy” rating.

Risk warning: military orders fall short of expectations; model development progress falls short of expectations; civil aviation market recovery falls short of expectations