Incident: The company released its 2024 mid-year report. Revenue for the first half of 2024 was 5.472 billion yuan, a year-on-year decrease of 0.59%, achieving net profit to mother of 0.723 billion yuan, a year-on-year decrease of 7.02%.

Key points of investment

The company's performance is stable, and its market share has further increased. AVIC Heavy Industries's revenue for the first half of 2024 was 5.472 billion yuan, down 0.59% year on year, achieving net profit to mother of 0.723 billion yuan, down 7.02% year on year. The main reason is the decline in overall operating income due to cyclical price fluctuations of some products. Despite a slight decline in revenue, the company's orders and product delivery remained stable, and the civil aviation and civil products business maintained a strong growth momentum. The inventory balance at the end of the first half of the year was 3.841 billion yuan, up 4.75% year over year. Mainly due to the further increase in the market share of the company's products, the increase in the number of new products delivered led to an increase in inventory. Sales expenses for the first half of the year were 42.1806 million yuan, up 23.73% year over year. Sales expenses have increased mainly due to the company's various subsidiaries, especially the newly acquired company Hongshan Company, increasing market development efforts. The company actively expands international and domestic markets, improves product quality, shortens delivery cycles, and increases research and development of new products.

Continue to develop new products and increase market development efforts. The company is actively developing new products, developing more than 2,300 new products in the first half of the year. The civil aviation business closely follows the development of large domestic aircraft, actively participates in technical research, develops many new projects and products, and goes one level further to achieve the goal of full coverage of forged and casting products. In addition, the company will use 365.6 million yuan in cash to increase the capital of Heavy Machinery Aerospace Materials Engineering (Guizhou) Co., Ltd. for the construction of aerospace company capacity enhancement projects to further enhance the company's production capacity and market competitiveness. After the company acquired Hongshan Company, it vigorously carried out key special tasks such as qualification certification, product trial production, and market development around Hongshan Company. Hongshan Company successfully completed on-site inspections of relevant production qualification certification, and quickly developed the international civil aviation equipment market. They have signed long-term cooperation orders with various companies and have reached a number of titanium alloy structural parts research and development cooperation with Boeing.

Occupy a leading position in technology and build a superior innovation system. AVIC Heavy Equipment has an advantageous industry influence, market supply chain and innovation system, and occupies a leading position in technology in the field of aviation infrastructure.

The company has strong technological innovation capabilities, and is in a leading position in the industry in terms of three-field design and testing capabilities, material research and development capabilities, material and molding process integration capabilities, large, medium and small series precision forging and casting collaborative manufacturing capabilities, and hydraulic environmental control development support capabilities. The company has an experienced team of professional, technical and skilled personnel, and has signed in-depth cooperation agreements with many well-known universities and research institutes in China. Continue to make breakthroughs in basic common technology, continuously enhance core competitiveness, and lay a solid foundation for the construction of a new ecosystem.

Profit forecast and investment rating: The company's performance is in line with expectations. Considering the company's leading position in the forging field, we maintain our previous forecast. The company's net profit for 2024-2026 is 1.539/1.889/2.172 billion yuan, respectively, corresponding to PE of 17/14/12 times, respectively, maintaining a “buy” rating.

Risk warning: 1) the risk of changes in product prices and gross margin; 2) the risk of fluctuations in raw material prices; 3) the risk of unstable production capacity.