Company development history: Continuous acquisitions form a dual-engine drive. 1) Wanfeng Aowei is an international company with “advanced manufacturing in the field of major transportation” as its core. Through continuous acquisitions, it has formed a “dual engine” driven development pattern for the lightweight automotive metal parts industry (aluminum alloy-magnesium alloy as the main line) and the innovative manufacturing industry for general aviation aircraft. 2) Looking at financial data: The compound growth rate of the company's revenue in 2020-23 was 14.8%, of which the automotive metal parts business grew at a compound rate of 14% and the aircraft manufacturing business grew at a compound growth rate of 19%. The automobile business accounted for 82.9% of revenue in '23, the gross profit margin was 18%, the aircraft manufacturing business accounted for 17.1%, the gross profit margin was 30%, and the gross profit ratio was 74.7% and 25.3%, respectively. In 2020-23, the company's net profit to mother was 5.7 billion, 0.33, 0.81, and 0.73 billion, respectively. Profits fluctuated greatly due to the impact of the epidemic in 20-21, a sharp rise in shipping costs, and a rise in raw material prices, respectively. Looking at the reporting segment, of 24H1's total profit, aircraft manufacturing accounts for 21%, automobile wheels account for 40%, magnesium alloy die-casting accounts for 27%, motorcycle wheels account for 9%, and coating processing business accounts for 3%.

Diamond Aircraft: Top 3 general aircraft manufacturers; imagine the future: broad economic space at low altitude. 1) The company acquired 55% of Wanfeng Aircraft Industry's shares in 2020 (holding Diamond Aircraft) and is one of the top three fixed-wing general aircraft manufacturers in the world. In 2023, the world delivered 3050 general aviation aircraft and 273 Diamond Air aircraft, accounting for 9%, accounting for more than half of the global CR3. 2) The DA40 is the main model. In 2023, 119 DA-40 units were delivered, accounting for 44%; DA-62 delivered 66, accounting for 24%; and DA42 delivered 54. The DA50 is a new model. In 2021-23, 7, 16, and 19 units were delivered respectively, reflecting new kinetic energy, accounting for 7% in 23. 3) Driver 1: The demand for traditional flight training is broad. Flight training is the most important application scenario for the company's current main aircraft, mainly DA40, DA42, and DA20. Customers are professional flight academies, airline training centers and other institutions around the world. The “Pilot and Flight Outlook” released by Boeing in 2024 predicts that there will be a large pilot gap in the next 20 years, flight demand in the US market will grow steadily, and the Chinese market has great potential.

4) Driver 2: Imagine 2027. From the perspective of OEMs, see how much space is in China's low-altitude manned market. a) Imagine 2027, how much space is there in the general aviation aircraft market? We make predictions based on two parameters: number of accessible airports+number of aircraft corresponding to a single airport. We expect 196 additional general aviation airports in '27 compared to '23, bringing the total number to 645, with a compound growth rate of 9.5% in 23-27. We expect the number of general aviation aircraft to increase by 44-119 percent in '27 compared to '23. We estimate the number of aircraft corresponding to a single airport of 7.4, 10, and 20. 2027 will add 1454, 1964, and 3929 aircraft compared to 23. b) Imagine 2027, how big is the eVTOL market space? We believe that city/intercity air traffic has the greatest potential. Assuming 1% of the cruise taxi penetration rate, that would mean a demand of more than 0.013 million eVTOL. As far as current progress is concerned, we expect that by 2027, low altitude+ tourism will be the first commercially available market. We assume that one-third of scenic spots above grade 4A will introduce eVTOL low-altitude tours in 2027, and 5-10 scenic spots will require at least 5000-10,000 aircraft. 5) Future highlights: Under the wave of the domestic low-altitude economy, the company may welcome new growth opportunities. Domestic low-altitude economic development is driving new commercial opportunities for diamond brand aircraft. In particular, the domestic short-haul transportation business is expected to have more demand for the DA62 model; at the same time, it is recommended to focus on the company's eVTOL model development progress.

Auto parts business: A leader in the segment. Expectations of automotive lightweighting drive an increase in the use of magnesium and aluminum alloys. 1) The dual carbon policy and the continuous increase in the penetration rate of new energy are driving the acceleration of automobile lightweighting. 2) The company is a leader in the automotive aluminum wheel business, and the card position new energy circuit optimizes the customer structure. The company has an annual production capacity of more than 18 million sets of aluminum alloy wheels, and has five major production bases in Xinchang, Ningbo, Weihai, Jilin and Chongqing in Zhejiang. In recent years, the share of new energy production and sales increased from 4.6% and 4.8% in 2020 to 31% and 31% in 2023, respectively. 3) Aluminum alloy motorcycle wheels: one of the world's largest motorcycle aluminum alloy wheel production bases. Currently, the annual production capacity exceeds 22 million pieces, accounting for about one-third of the global market share. 4) Magnesium alloy casting parts business. The company acquired Magnesia Ruiding and expanded the magnesium alloy die-casting business, accounting for more than 65% of the North American market.

Magridine achieved net profit of 0.4 billion in 2023.

Investment advice: 1) Profit forecast: We expect the company to achieve net profit of 9.4, 11.1 and 1.35 billion yuan in 2024-26, corresponding EPS of 0.44, 0.52 and 0.63 yuan, respectively, and corresponding PE of 38, 33, and 27 times.

2) As one of the core targets of the low altitude economy, we selected Huachuang Transportation | Low Altitude 60 Index for comparison. The increase since this year was 108 times the 23 year average PE corresponding to the top 10 targets, and 20.24 million achieved a consistent expected profit of PE68 times (as of the closing price on October 21). The company is at a low level of valuation in the low-altitude economy sector.

Risk warning: The price of raw materials has risen sharply, the domestic low-altitude policy falls short of expectations, and the macroeconomy falls short of expectations.