1H24 results are in line with market expectations

The company announced 1H24 results: operating income of 7.712 billion yuan, -20.00% year over year; realized net profit of 0.249 billion yuan, or -35.77% year on year; realized deducted non-net profit of 0.186 billion yuan, or -49.95% year on year. Looking at a single quarter, 2Q24 achieved operating income of 3.898 billion yuan, -24.73% year-on-year, and +2.20% month-on-month; net profit to mother 0.106 billion yuan, -48.41% year-on-year, and -25.56% month-on-month. 1H24 results are in line with market expectations.

Development trends

Delivery of aerospace products declined year on year, compounded by increased competition in the cable industry disrupting 1H24 performance. 1) The company's 1H24 revenue scale fluctuated, mainly due to a decline in aerospace product delivery compared to the same period last year, and 1H24's wire and cable business is still within the scope of consolidation. 2) At the subsidiary level, Aerospace Long March 1H24 achieved revenue of 1.509 billion yuan, or -13.30%, and achieved net profit of 0.064 billion yuan, +17.98% year over year. Hangzhou Aerospace/Aerospace Guanghua/Times Laser 1H24 achieved net profit of 0.034/0.037/0.037 billion yuan respectively, a year-on-year decline of 21.02%/28.24%/8.68%.

The level of gross margin has increased steadily, and the application of aerospace technology has been actively expanded. 1) The company's 1H24 aerospace products achieved revenue of 5.746 billion yuan, with a gross profit margin of 22.13%; general-purpose products achieved revenue of 1.935 billion yuan, with a gross profit margin of 10.97%. The company's overall gross margin increased by 1.81 ppt to 19.44% year-on-year. 2) The company's expense ratio increased by 2.88ppt to 15.8% year-on-year during the 1H24 period, and the company's net interest rate fell 0.79ppt to 3.23% year-on-year due to the expansion of expenses during the period. 3) The company 1H24 actively promoted the expansion of aerospace technology applications. The Airspace Integration Communication Technology Group R&D center received approval from the group company for construction, the first batch of FH-96V composite wing drone products were successfully delivered, and the “space-borne microwave laser composite detection radar” initially had the ability to industrialize.

The divestment of aerospace electricians focuses on the main business and increases capital to support the development of the electromechanical component business. 1) In August 2024, the company transferred 51% of Aerospace Electric Company's shares and completed the registration procedure for market supervision changes. The company no longer submitted consolidated statements for Aerospace Electric Company, and achieved the restructuring of the company's main business and focus on the main business. Excluding aerospace electricians, the company's revenue/net profit increased 15.81%/32.66% year-on-year respectively in 2023. 2) In August 2024, the company announced that it plans to increase the operating assets of the MEMS mechanical and electrical components business to its wholly-owned subsidiary, Primmen and that it plans to change the name of Pulliman Company to Beijing Aerospace Times MEMS Technology Co., Ltd., to support the transformation of MEMS's scientific research achievements and market development.

Profit forecasting and valuation

Considering the pace of release of the company's downstream demand and the impact of the divestment of aerospace electricians, we lowered the company's 2024/2025 net profit by 17.5%/19.9% to 0.58/0.682 billion yuan. The current stock price corresponds to 41.5/35.3x P/E in 2024/2025. We maintain the outperforming industry rating. Considering the company's leading edge in the aerospace electronics and unmanned equipment industry, the target price remained unchanged at 9.01 yuan, corresponding to 2024/2025 51.2/43.6x P/E, with a potential increase of 23.4%.

risks

Fund-raising project construction falls short of anticipated risk; downstream demand falls short of expected risk; market competition increases risk.