Event: The company released its 2024 semi-annual report. 2024H1 achieved revenue (18.548 billion yuan, yoy +4.35%), net profit attributable to mother (0.595 billion yuan, yoy -17.99%), net profit not attributable to mother (0.546 billion yuan, yoy -0.97%). 2024Q2 achieved revenue (12.276 billion yuan, yoy +5.6%), net profit attributable to mother (0.44 billion yuan, yoy -30.97%), net profit not attributable to mother (0.441 billion yuan, yoy -24.38%).

1. Revenue level: 2024H1 achieved revenue (18.548 billion yuan, yoy +4.35%).

2024H1 achieved revenue from aero engines and derivatives (17.16 billion yuan, yoy +4.02%); revenue from foreign trade export subcontracting business ((1.004 billion yuan, yoy +11.02%); revenue from non-aviation products and other businesses (0.1 billion yuan, yoy -11.87%). At the subsidiary level:

1) Liming Company: Revenue (11.755 billion yuan, yoy +4.98%), total profit (0.376 billion yuan, yoy +5.55%), profit margin (3.2%, yoy+0.02pct).

2) Southern Company: revenue (2.114 billion yuan, yoy -16.8%), total profit (0.043 billion yuan, yoy -72.11%), profit margin (2.02%, yoy-4.01pct).

3) Liyang Power: revenue (1.38 billion yuan, yoy +3.01%), total profit (0.043 billion yuan, yoy +317.56%), profit margin (3.11%, yoy+2.34pct).

4) Company headquarters: revenue (7.231 billion yuan, yoy +17.15%), total profit (0.479 billion yuan, yoy -3.55%), profit margin (6.62%, yoy-1.42pct).

2. Profit level: 2024H1 achieved net profit to mother (0.595 billion yuan, yoy -17.99%).

2024H1 company sales gross profit margin (11.27%, yoy-0.63pct), net sales margin (3.56%, yoy-0.81pct). Looking at a single quarter, the 2024Q2 gross profit margin (11.09%, yoy-0.77pct), net sales margin (3.86%, yoy-1.9pct), and the main reason for the year-on-year decline in the net profit of the 2024H1 company to mother was a year-on-year decrease of 0.242 billion yuan in investment income.

3. Cost level: 2024H1 company period expenses (1.32 billion yuan, yoy +1.67%). From an absolute value perspective, sales expenses (0.288 billion yuan, yoy +15.63%), mainly an increase in after-sales support tasks, an increase in sales service fees; management expenses (0.696 billion yuan, yoy -7.08%); R&D expenses (0.187 billion yuan, yoy -24.95%), mainly a decrease in project expenses; financial expenses (0.15 billion yuan, yoy +190.07%). The main reason is the increase in phased financing and interest expenses, and the second is an increase in exchange Revenue decreased; from a rate perspective, the rate during 2024H1 (7.11%, yoy-0.19pct), with sales/management/R&D/finance rates +0.15/-0.46/-0.39/+0.52 pct, respectively. Furthermore, the total asset and credit impairment of 2024H1 company (-0.072 billion yuan, yoy +18.36%).

4. Balance sheet: Inventory and accounts payable indicators indicate order growth. 2024H1's inventory (36.225 billion yuan, up 22.12% from the beginning of the period), mainly increased orders and product investment; accounts payable (27.834 billion yuan, up 54.82% from the beginning of the period), mainly increased production tasks, increased procurement of raw materials and ancillary products; and contract liabilities (7.217 billion yuan, a decrease of 39.23% from the beginning of the period), mainly due to product delivery confirmation revenue.

5. Company operating plan for 2024: Expected revenue (49.762 billion yuan, yoy +13.68%), net profit to mother (1.512 billion yuan, yoy +7.08%). 2024H1's revenue and net profit to mother completed 37.27% and 39.35% of the annual budget, respectively. Referring to the company's annual operating target, the 2024H2 revenue and net profit attributable to mother were 31.214 and 0.917 billion yuan respectively, up 20.06% and 33.48% year-on-year respectively.

Investment advice: We expect the company's net profit to be 1.787, 2.261, and 2.873 billion yuan respectively from 2024 to 2026, with corresponding PE being 53X, 42X, and 33X respectively, maintaining a “buy” rating.

Risk warning: the impact of changes in VAT policies; price reductions for weapons and equipment exceeded expectations; order delivery time fell short of expectations.