Description of the event

The company released its 2024 semi-annual report. 2024H1 achieved revenue of 7.712 billion yuan, a year-on-year decrease of 20.00%, and realized net profit of 0.249 billion yuan, a year-on-year decrease of 35.77%; 2024Q2 achieved revenue of 3.898 billion yuan, a year-on-year decrease of 24.73%, and realized net profit of 0.106 billion yuan, a year-on-year decrease of 48.41%.

Incident comments

Affected by fluctuations in demand in the traditional aerospace defense sector and increased competition in the wire and cable business, the company's overall revenue and performance declined year-on-year in the first half of the year, while the revenue and performance of the drone business bucked the trend and surged year-on-year. The company's overall revenue for the first half of 2024 was 7.712 billion yuan, down 20.00% from the same period last year, and overall performance was 0.249 billion yuan, down 35.77% year on year. By sector, after excluding the civil product subsidiary Aerospace Electric Group, the company's revenue fell 16.54% year on year to 5.746 billion yuan, and it is estimated that the revenue of the civil products business (Aerospace Electric Group) fell 29.77% year on year to 1.935 billion yuan. Facing market fluctuations in the traditional aerospace support sector, the company seized market opportunities in emerging fields such as commercial aerospace, low-altitude economy, and satellite internet in the first half of the year. The company's measurement and control communication business subsidiary Aerospace Long March achieved net profit of 0.064 billion yuan in the first half of the year, and net profit increased 17.98% year on year. In terms of building the “chain leader” of the unmanned systems industry chain, the company's drone business subsidiary achieved revenue of 0.623 billion yuan in the first half of the year, an increase of 71.41% over the previous year, and achieved net profit of 27 million yuan, an increase of 361.02% over the previous year. According to estimates of Feihong's revenue accounting for 26%-32% of the year in the first half of the year, Feihong is expected to double its revenue throughout the year.

The company proposes to use emerging markets to help the company's sustainable development, accelerate industry and product layout adjustments and product spectrum expansion, promote low-cost sustainable development projects, continuously strengthen the company's competitive advantage, and steadily increase gross margin levels. 2024H1's overall gross margin level was 19.44%, up 1.81 pct from year to year. By business segment, the 2024H1 aerospace and military business continued to maintain a high level of 22.14%. The civil goods business was affected by insufficient industry demand and fierce price competition, and the gross margin level continued to be low at around 10%. The company is steadily advancing the 51% equity transfer of Aerospace Electric Company, achieving the restructuring and main business focus of the company's main business, and improving the company's overall level of profit efficiency.

Affected by delays in confirmation of downstream deliveries, the company's 2024H1 year-end accounts receivable and inventory reached historic peak levels. At the same time, the company's 2024Q2 net operating cash flow outflow continued to expand month-on-month. The 2024Q2 year-end contract debt balance season was seasonally low. The company's annual repayments were concentrated in the fourth quarter, and the company's revenue, performance may be recovered in the second half of the year. The company's accounts receivable balance at the end of the 2024H1 period climbed to the second-highest level in history of 10.512 billion yuan, while the inventory level increased to a record high of 21.042 billion yuan. The share of products continued to increase, which may indicate that the company is actively responding to downstream demand and preparing goods for production. Furthermore, due to downstream delivery falling short of expectations, the company's 2024Q2 operating cash flow continued the sharp outflow trend of 2024Q1, once again showing a sharp net outflow of 1.818 billion yuan. At the same time, the company's contract debt balance fell to a historically low level of 1.845 billion yuan month-on-month at the end of the 2024Q2 period. According to the cash situation received from the company's sales of products and services in each quarter of the year, most of the company's repayments are concentrated in the fourth quarter of each year. The return of capital in the second half of the year is compounded by a continuous recovery in downstream demand, and the company's revenue and performance are expected to improve.

The company is expected to achieve net profit of 1.165, 1.062, and 1.309 billion yuan in 2024-2026 (considering the divestment of aerospace electrical assets), with year-on-year growth rates of 122%, -8.82%, and 23%. Corresponding to the market value on September 2, 2024, PE is 20, 22, and 18 times, respectively.

Risk warning

1. Uncertainty about the pace and scale of equipment orders placed after the 14th Five-Year Plan period; 2. The risk that profit forecasts will not be true or fall short of expectations due to fluctuations in the company's production and operation or asset restructuring.