Incident: The company released its 2024 semi-annual report. 24H1 achieved revenue of 5.472 billion yuan (-0.59%) and net profit of 0.723 billion yuan (-7.02%); in a single quarter, 24Q2 achieved revenue of 2.824 billion yuan (-10.75%) and net profit of 0.401 billion yuan (-20.81%) to mother.

2024H1's revenue declined slightly, and the civil aviation and civil products business grew rapidly: 2024H1's revenue was 5.472 billion yuan (-0.59%), mainly due to cyclical price fluctuations for some products. Looking downstream, (1) defense: Cyclical price fluctuations of some products have had a certain impact on the company's business scale growth, but the market share of the company's mass-produced products has increased steadily; (2), civil goods: civil aviation and civil products businesses maintained strong growth momentum in Q1. The revenue of civil aviation and civil products increased 112.62% and 26.25% year-on-year respectively. The company's business gradually diversified, and commercial and civil engineering gradually entered the fast track of rapid development. At the same time, the production capacity of the company's large-scale forging equipment is expected to be gradually released, and it is expected that the annual target will be successfully completed in accordance with the annual business plan.

The exclusion of Hongshan and the merger showed that the company's performance in the first half of the year was basically flat, gross margin declined slightly, and the expense ratio improved during the period. 2024H1 achieved net profit of 0.723 billion yuan (-7.02%), and Q2 achieved net profit of 0.401 billion yuan, down 20.81% year-on-year from last year's high base, mainly affected by fluctuations in product price cycles and the merger of Hongshan Company. Hongshan lost 0.06 billion dollars during the reporting period. Excluding Hongshan, the company's net profit to mother fell 0.89% year-on-year in the same caliber, which is basically the same as the same period in 2023. The company's net margin for the first half of the year was 13.92% (-1.11pct). Among them, 2024H1's gross margin fell to 30.65% (-3.81pct), and the period expense ratio decreased to 12.29% (-0.82pct). Gross margin declined or due to changes in product structure and price fluctuations.

Aviation forges the lead and opens a new stage of civil-military collaborative development. The company has continued to dispose of loss-making assets since 17, forming military forging and hydraulic businesses with excellent assets and strong competitive advantages. (1) Defense: As a leader in aviation forging, the company has obvious advantages in technology+equipment+customer. Benefiting from military aircraft upgrades and domestic aviation replacement acceleration, the aviation forging and casting business will enter a period of rapid development. The company makes up for equipment shortcomings in large-scale and advanced forging businesses through fixed increases and acquisitions. (2) People: The market space for domestic civil aircraft and foreign trade business is huge. The company closely follows the development of large domestic aircraft and develops many new projects and products to achieve the goal of full coverage of forged and casting products; the foreign trade subcontracting business is growing rapidly, and international competitiveness is steadily improving. The company continues to introduce equity incentives to fully motivate the core backbone, which is expected to further enhance profitability.

Maintaining the previous profit forecast, EPS is expected to be 1.05, 1.25, and 1.50 yuan for 24-26. Referring to the comparable company's PE 21 times in 24, the target price is 22.05 yuan, and the target price is 22.05 yuan, maintaining the purchase rating.

Risk warning

The progress of military orders and revenue recognition fell short of expectations; the amount of credit and asset impairment was higher than anticipated