Net profit of 24H1 fell 233.34% year on year. Maintaining the “buy” rating, Aerospace Nanhu released its semi-annual report. In 2024, H1 achieved revenue of 0.066 billion yuan (yoy -81.78%) and net profit to mother of 39.3597 million yuan (yoy -233.34%). We expect the company's net profit to be 0.096/0.164/0.215 billion yuan in 2024-2026 (previous value of 0.132/0.181/0.244 billion in 2024-2026). The reason for the reduction is due to changes in the procurement pace of the company's downstream users. Comparatively, the company's 24-year Wind unanimously anticipated an average PE value of 43 times. Considering that the company's air defense warning radar products are becoming more important in equipment construction, they are also the core components of low-altitude economic hollow tube hardware. Subsequent development is expected to be driven by both equipment construction and low-altitude economic development. The company was given 55 times PE in 24 years, with a target price of 15.92 yuan (previous value of 23.79 yuan), maintaining a “buy” rating.

Demand from downstream customers slowed, and the mid-term results had limited references to annual results. In the first half of the year, the company was affected by factors such as user procurement policy adjustments, international market uncertainty, and seasonal characteristics. Product delivery schedule was delayed, and business performance declined compared to the same period last year. Among them, the radar and supporting equipment business achieved revenue of 33.09 million yuan, a year-on-year decrease of 89.27%; the radar parts business achieved revenue of 25.17 million yuan, a year-on-year decrease of 52.05%. In terms of gross margin, the gross margin of radar and supporting equipment in the first half of the year was 15.98%, and radar components were 13.27%. It was significantly lower than normal due to changes in product structure and insufficient production scale. The company's overall gross margin was 12.85%, compared to 27.97% for the same period last year. Looking at the historical situation, the company's revenue and profit were mainly confirmed in the fourth quarter, and the interim results had limited reference for the full year.

Focusing on market development and new industrial layout, the foreign trade and low-altitude economy business continued to develop in the first half of the year, the company actively strengthened exchanges and cooperation with military trade companies to promote international market development. At the same time, it actively promoted export projects for new military trade radar models, completed the development tasks of new military trade radar models with high quality, and continued to enhance military trade business development capabilities. Furthermore, the company's Low Altitude Division has seized opportunities for low-altitude economic development, carried out extensive market research around low-altitude safety and security requirements, and actively participated in local governments' low-altitude economic development planning verification and discussion. At the same time, the company uses years of technical accumulation in low-altitude target warning and detection to continue to carry out key technical research and development of new products around military and civilian low-altitude market needs, and continues to increase research and development efforts on low-altitude safety detection products and low-altitude safety detection systems, etc., to accelerate the cultivation of new quality productivity.

The fundraising is progressing smoothly, and it is expected to be completed and put into operation within the year

As of June 30, the capital raised for the intelligent production transformation project in the company's fund-raising project was 54.88%. The construction of the fund-raising project is nearing completion. The company is expected to be put into use in the second half of 2024. After the fund-raising project is completed and put into operation, it will greatly improve the company's scientific research and production infrastructure, enhance the level of digitalization and intelligence in manufacturing, further enhance the company's core competitiveness, and lay the foundation for the company to adapt to corresponding production capacity when downstream demand is released.

Risk warning: Risk of product price reduction, risk of military trade business falling short of expectations.