Incident: The company released its 2024 semi-annual report. 24H1 achieved operating income of 0.137 billion yuan, -44% year over year; realized net profit to mother of 0.018 billion yuan, or -118.24% year on year. Single Q2 achieved operating income of 0.083 billion yuan, -13.25% YoY; realized net profit to mother of 0.012 billion yuan, or -128.82% YoY.

Comment:

The main business is greatly affected by the cyclicality of the aviation equipment market and industry policies, and performance is under pressure in the short term. The company's revenue side declined significantly due to reduced demand from major customers. At the same time, due to industry policies, various aircraft mainframe manufacturing units lowered product purchase prices. The profit side is also affected to a certain extent by this factor. In 24H1, the company's gross sales margin/net margin was 1.02%/-12.79%, respectively, a year-on-year decrease of 48.81 pct/52.08 pct. On the cost side, due to the relative rigidity of expenses, the cost rate increased significantly during the period. Sales/management/R&D/finance expenses were 1.22%/7.19%/12.99%/-4.90%, respectively, +0.78pct/+3.03pct/+8.68pct/-2.66pct.

The capital was increased to hold 52% of Xirui Fangxiao's shares to expand its business in the field of polymer materials applications. In April '24, the company announced that it plans to use its own capital of 21.7152 million yuan to subscribe for an additional share capital of 9.36 million shares. After the capital increase is completed, the company will hold 52% of Ciri Fangxiao's shares. Xirui Fangxiao is a high-tech enterprise dedicated to the application of polymer materials. It is a new material direction encouraged by the country. Its products are widely used in aerospace, new energy and other industries. The final investment in the acquisition was paid on July 26, 2024, and Sherry has been consolidated since July 2024.

The construction of intelligent manufacturing capacity for aviation parts is progressing steadily, and business is being actively expanded in various fields. In terms of military aviation business, the company is greatly affected by market cyclical effects and industry policies. With the subsequent recovery in industry demand, the company's main business is expected to improve. The company's production capacity construction is progressing steadily. As of 24H1, the investment progress of the aviation parts intelligent manufacturing center funded by the company has reached 60%, and the estimated time for the project to reach the scheduled state of use is December 31, 2024. The main project of the Aviation Parts Intelligent Manufacturing Center reached the expected state of use in October 2023, transferred to fixed assets, and some of the equipment has been put into use one after another. In the civil aviation business, the company is seizing market opportunities, and this business has maintained steady growth. In addition, the company continues to expand its multi-regional and multi-customer market business, actively expand the R&D and design of finished aircraft products, and expand the business chain.

Profit forecast, valuation and rating: Considering the impact of changes in downstream demand on the company's performance, the 24-year net profit forecast was adjusted to 0.033 billion yuan, and the 25/26 net profit forecast of 0.044/0.061 billion yuan was added. The corresponding EPS for 24-26 was 0.11/0.15/0.21 yuan, respectively. The PE corresponding to the current stock price is 110x/82x/60x, respectively.

Adjust the company rating to “increase holdings.”

Risk warning: Industry policy adjustments and market competition increase risk; risk of high customer concentration; risk of collection of accounts receivable; risk of differences between provisional price and approved price; risk of delayed delivery of products; risk of fund-raising projects falling short of investment expectations.