The company discloses its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 65.8337 million yuan, a year-on-year decrease of 81.78%; net profit loss to mother of 39.3597 million yuan, profit of 29.5191 million yuan in the same period of the previous year; after deducting non-net profit loss of 40.739 million yuan, profit of 21.8937 million yuan for the same period last year; net cash flow from operating activities was -0.157 billion yuan, compared to 0.281 billion yuan in the same period last year.

Radar product deliveries have declined, putting short-term pressure on performance. The company achieved revenue of 0.066 billion yuan, a year-on-year decrease of 81.78%, mainly due to a decrease in the delivery volume of radar products; total profit changed from profit to loss, falling from 0.024 billion yuan to -0.053 billion yuan, mainly due to a sharp decrease in operating income and an increase in the cost ratio. Among them, revenue from radar and supporting equipment was 0.033 billion yuan, and revenue from radar components was 0.025 billion yuan.

The company's short-term gross margin declined, and profit fluctuated due to rising expense ratios. The gross sales margin of Aerospace Nanhu during the period was 12.85%, a decrease of 15.16 pct compared to the same period last year. During the period, Aerospace Nanhu's sales expenses were 3.6582 million yuan, a slight decrease of 2.16% year on year, and bidding-related expenses increased to 5 million yuan; management expenses were 27.9016 million yuan, up 6.65% year on year, mainly due to increased employee remuneration and after-sales expenses; financial expenses were negative 17.3065 million yuan, up 47.81% year on year, mainly due to an increase in the average monthly balance of bank deposits. R&D expenses (0.047 billion, -31.47%).

Technical advantages have created a strong moat, and new products are progressing as scheduled. As a listed company under the Beijing Radio Institute, the company's air defense warning radar technology is in a leading international position. It has formed a complete set of core technology reserves. It has mastered 7 types of core technologies, including phased array radar overall design, software radar, adaptive anti-interference, target classification and recognition, highly mobile integrated structure design, phased array antenna design, and transceiver component design, which has helped the company successfully win bids for multi-type air defense warning radar development projects in recent years. The company is developing five key models. Currently, three are in a state assessment state. One is in the engineering development stage, and one is in the prototype development stage. The new product enters mass production or will bring about the rapid release of new performance.

Take advantage of foreign trade and the low-altitude economy to break through traditional military market restrictions. The company focuses on the main business of air defense and warning radars. While increasing its efforts to develop the domestic market for complete radar aircraft, the company also has many military trade product models on sale. Currently, the military trade business has sufficient orders, and the military trade business achieved revenue of 0.11 billion yuan in 2023. The establishment of a low-altitude division to broaden the new industrial circuit. The pace of industrialization in the low-altitude field is fully accelerated. Jingzhou will accelerate the construction of the low-altitude economy and may speed up the implementation of the company's products. On the other hand, it actively responds to user demand and increases the development and production of supporting equipment products such as radar protective equipment and radar testing equipment. A certain type of training and evaluation system successfully expanded the new user market, won a bid for a user's air traffic control radar supporting equipment development project, and entered the air traffic control field.

Profit forecast: Considering that the recovery of the industry fell short of expectations, we lowered the company's profit forecast. We expect the company's net profit to be 0.111, 0.136, and 0.168 billion yuan in 2024/2025/2026, corresponding valuations of 40, 32, and 26 times, maintaining a “highly recommended” rating.

Risk warning: Risk of fluctuations in downstream demand, the company's product development progress falling short of expectations, and changes in the competitive landscape.