Incident: The company released its 2024 mid-year report. 24H1 achieved operating income of 1.268 billion yuan, +7.12% year over year, and net profit to mother of 0.152 billion yuan, -5.95% year over year. Among them, 24Q2 revenue was 0.606 billion yuan, +5.08% YoY, and net profit to mother was 0.061 billion yuan, or -23.33% YoY.

The two-machine business continues to expand. The company's “two aircraft” parts business has maintained high growth, with sufficient orders on hand, abundant reserve models, 555 varieties have been developed, and 145 varieties are under development. In 2024, the H1 aerospace new materials and components business achieved revenue of 0.437 billion yuan, +19.65% over the same period last year. In the field of gas turbines, the company has developed hot-end products for various types of gas turbines such as E/F/H/J class. The power range covers 12MW-400MW main models, and the customer base covers major global combustion engine giants. Higher grade G/H turbine blades also achieved technological breakthroughs in May of this year. In the aero engine business, the company continues to steadily supply core components such as high-temperature alloy blades, chassis, and bearing seats for the C919 and C929; benefiting from growing demand in overseas aviation markets, the company continues to produce LAEP series engine cases at full capacity, and has closer cooperative relationships with G and S companies, and the order scale has further expanded.

Pioneer in the localization of nuclear power, completing a multi-product layout. 2024H1's new nuclear materials and components business achieved revenue of 2.14 yuan, +18.39% over the same period last year. In the field of nuclear power castings, the company continues to maintain its leading edge in nuclear primary pump pump cases, vigorously develops nuclear and conventional island products, and also focuses on the delivery of spray pump bodies for a small reactor technology demonstration project, nuclear grade 1 motor supports, and blast valves for a project. In the field of new nuclear energy materials, the company is actively expanding the entire nuclear industry chain. The upper and lower shells of the Dewar project of the Chinese Academy of Sciences were successfully integrated at the Science Island site, production and supply inspections of key national projects undertaken were completed, and flexible shielding material ionizing radiation protection samples for nuclear power and medical ionizing radiation protection samples were developed. At the same time, the company also actively participated in new fields such as advanced reactors and nuclear fusion, and established a joint venture in the first quarter of 2024 to conduct industrialization research. In March 2024, China Nuclear Power announced a 24-year investment plan of 121.553 billion yuan, +51.9% over the same period last year. The growth of nuclear power is constantly improving. From 2019 to 2023, the number of approved nuclear power units in China was 4, 4, 5, 10, and 10, respectively, showing an overall trend of positive, safe and orderly development. The number of approved units reached 11 in August 2024, the highest number of approvals since 2008. According to the Nuclear Energy Industry Association, it is estimated that the scale of starting 8-10 million-kilowatt units per year is that in 2030 and 2035, China's nuclear power installations will reach 0.12 billion and 0.15 billion kilowatts respectively. The power generation capacity will account for 7.3% and 10% of the country's total power generation, respectively (accounting for about 5% in 2023), and there is broad scope for nuclear power development. It is expected that demand for related nuclear power equipment and nuclear energy materials will gradually be released over several years, and the company's nuclear power business will usher in rapid development.

Seizing low-altitude development opportunities, the location advantage is remarkable. The company is currently a scarce target in the low-altitude economy, from aircraft engines to machine manufacturing to airport operations. According to the “Implementation Plan for Innovative Application of General Aviation Equipment (2024-2030)”, “hybrid, turboshaft & turboprop products” are an important component of the general aviation equipment product lineage. During the reporting period, the company actively carried out optimization and improvement work on the YLWZ-190 engine; studied and organized the implementation of a mapping test plan for the YLWZ-190 engine using ammonia fuel in cooperation with relevant units; completed the assembly and test run of the YLWZ-300 engine and delivered it to a certain unit to complete co-operation with the power generation system, and the engine ran smoothly; a certain model successfully competed for the hybrid package project, and is making every effort to support and deliver subsequent orders. The drone with a take-off weight of 600 kg developed by the company has successfully completed a certain mission after a year and a half of test flights. The product is close to being finalized; the 1100 kg drone is equipped with a 300KW self-developed engine, and related test flight work is being carried out. It is worth emphasizing that the company's geographical advantage is remarkable. Anhui is China's third pilot province for global low-altitude airspace management reform. The scale of the low-altitude economy exceeded 40 billion yuan in 23, and has gathered more than 300 companies such as Yihang Intelligence, Modern Technology, and Zero Gravity. The “Anhui Province Implementation Plan to Accelerate the Cultivation and Development of the Low-Altitude Economy (2024-2027) and Certain Measures” issued in April 2024 indicates that the scale of the low-altitude economy will reach 80 billion yuan by 2027. The Yingliu aviation industry has a complete chain and layout for many years, and is expected to grow into a leading enterprise in the low-altitude economy and ecology of Anhui.

Investment suggestions: The company's downstream industries, such as dual-engine and nuclear power, are booming, and new products are entering the release cycle. As production capacity utilization increases, I am optimistic that the company's profit elasticity will gradually show; the company's entire industry chain and regional advantages have been evident under intensive policy impetus. The business is expected to replicate the growth path of the two-engine business and become a new growth pole. Based on the pace of business development in the first half of the year, the company's net profit for 2024-26 is expected to be 3.64, 4.65, and 574 million yuan, respectively, corresponding to EPS of 0.54, 0.69, and 0.85 yuan, and PE is 18, 14, and 12 times, maintaining a “buy-A” rating.

Risk warning: 1. New product development falls short of expectations; 2. Raw material prices fluctuate greatly; 3. Risk of exchange rate changes.