Incident: The company released its 2024 mid-year report. In the first half of 2024, total operating income was 7.712 billion yuan, -20.00% year over year, and net profit to mother was 0.249 billion yuan, or -35.77% year over year.

Key points of investment

Mainly affected by the decline in aerospace product deliveries and increased competition in the wire and cable industry, the company's revenue and net profit are under pressure: in the first half of 2024, the company achieved a total operating income of 7.712 billion yuan, -20.00% year over year, mainly due to the decline in aerospace product delivery compared to the same period of the previous year, which led to a decrease in aerospace product revenue compared to the same period last year; in addition, wires and cables were all included in the scope of mergers during the reporting period. Due to intense competition in the cable industry, civil product revenue fell more than in the same period last year. Net profit to mother was 0.249 billion yuan in the first half of 2024, or -35.77% year-on-year, mainly due to a decrease in revenue compared to the same period. Excluding aerospace electricians, operating income and net profit decreased by 16.54% and 30.01%, respectively. As of the first half of 2024, the company received 4.834 billion yuan in cash from sales of products, net cash flow from operating activities was -3.073 billion yuan, and -1.908 billion yuan in the same period last year. The company is still facing significant financial pressure.

While completing major space missions, the company is actively expanding the aerospace support market and emerging fields:

In the first half of 2024, with strengthening scientific research and production management and strict control of product quality, the company successfully completed major space missions including “Shenzhou 18”, “Tianzhou 7” and “Chang'e-6”, consolidating its leading position in the field of aerospace electronic information. The company actively expanded the aerospace support market, realized support for manned lunar landing projects, and fully supported user equipment in the field of satellite payloads. At the same time, the company is deepening reforms, strengthening the construction of a marketing system, optimizing market operation models, and promoting the integration of resources in domestic and foreign, military and civilian products, R&D and model markets. Facing market fluctuations, the company is speeding up industrial and product layout adjustments, and actively lays out emerging markets such as commercial aerospace, low-altitude economy, and satellite internet to promote sustainable development. In the field of unmanned system equipment, the company closely follows user needs, enriches the product spectrum, and accelerates the establishment of a leading position in the unmanned systems industry chain. At the same time, it has also achieved new breakthroughs in overseas markets and maintained a good momentum of development.

The company has leading technical strength and market share in the field of aerospace electronic information and unmanned system equipment: with the qualifications and capabilities of its own level and subsidiaries, the company has strong R&D, production and testing guarantees in the field of supporting production of aerospace and model products, ensuring its core competitiveness. In the field of aerospace electronic information business, the company maintains domestic leadership in inertial and navigation, measurement and control communications, microelectronics, etc., and is steadily increasing its market share. In the field of unmanned system equipment, with its deep technical reserves and product development experience, the company has become a key industrial chain unit built by the Aerospace Science and Technology Group. Its “Feiteng” series of precision guidance products are internationally renowned.

Profit forecast and investment rating: The company's performance is in line with expectations. Considering the company's dominant position in aerospace electronics and the rapid expansion of the military trade market, we maintain the previous forecast. The company's net profit forecast for 2024-2026 is 0.737/0.924/1.104 billion yuan, respectively, corresponding to 33/26/22 times PE, maintaining a “buy” rating.

Risk warning: 1) market risk; 2) working capital turnover risk; 3) profit decline risk; 4) product development risk.