Incident: The company released its report for the third quarter of 2024. The first three quarters of 2024 achieved operating income of 0.738 billion yuan, an increase of 22.55% year on year; net profit to mother was 0.309 billion yuan, up 14.41% year on year.

The performance was steadily realized, and the expansion in the size of the subsidiary led to an increase in the cost ratio. On the revenue and profit side, 2024Q3 achieved revenue of 0.253 billion yuan, an increase of 14.77%; realized net profit to mother of 0.094 billion yuan, an increase of 8.01%. In terms of profitability, in the first three quarters of 2024, the company achieved a gross profit margin of 54.61%, a year-on-year decrease of 4.23pct; a net sales margin of 39.55%, a year-on-year decrease of 4.44pct. On the cost side, the company's three fees accounted for 9.94% in the first three quarters of 2024, an increase of 4.57pct over the previous year.

Among them, sales expenses were 0.013 billion yuan, an increase of 31.48%, mainly due to the expansion of the size of the holding subsidiary during the reporting period; financial expenses of 0.009 billion yuan, mainly due to amortization of unconfirmed financing expenses, loan interest and discount fees during the reporting period; management expenses of 0.052 billion yuan, an increase of 76.81% over the previous year, mainly due to the expansion of the size of the holding subsidiary and the increase in management personnel during the reporting period, payment fees and patent amortization confirmation Also due to an increase in the depreciation amount of the right to use assets included in management expenses for leased office buildings.

Contract debt reached a record high, with sufficient orders in hand and active production preparation. In terms of forward-looking indicators, as of 24Q3, the company's contract debt increased 115.13% to 0.032 billion yuan at the end of 23, a record high. It was mainly due to an increase in advance payments under the sales contract, indicating that the company had sufficient orders in progress; advance payments increased 457.03% from the end of 23, mainly due to the advance payment of Huaqin Technology and Huaqin Optoelectronics in the current period; mainly due to the increase in the cost of goods issued in the current period and contract performance costs; mainly due to the increase in the cost of goods issued in the current period and contract performance costs of the current period; mainly due to the increase in the cost of goods issued during the current period and contract performance costs, which were mainly due to the increase in the cost of goods issued during the current period and contract performance costs increased by 94.33% compared to the end of 23, mainly due to the increase in the cost of goods issued in the current period and contract performance costs. This is due to the Huaqin Technology fund-raising project and the construction of the Huaqin Airlines production line. In terms of in-hand orders, the company disclosed contracts for batch production of stealth materials on January 17, January 30, and July 4, 2024, respectively. The amount including tax was 0.31 billion yuan, 0.332 billion yuan, and 0.132 billion yuan respectively. The company's abundant on-hand order reserves are expected to have a positive impact on performance.

Short-term first-mover advantage: The core stealth business benefits from booming demand for front-end and maintenance, and product iteration drives an increase in the value of a single unit. ① Demand for front assembly and maintenance: Advanced aviation equipment has led to a high increase in traction revenue, and the market continues to grow continuously after extensive maintenance; ② The value of a single unit has been iteratively upgraded: the product line has been iteratively upgraded in the direction of stealth structure/multi-function compatibility, increasing the value provided to customers with single equipment. Mid-term business expansion: integrated into the aviation development cooperative industry system, vertical layout of ceramic-based and machining operations. ① Ceramic-based composites: Establishing Shanghai Ruihuasheng's forward-looking ceramic-based composite business, opening up a second growth curve for the aviation development industry; ② Aviation parts processing: Establishing the Huaqin Aviation Publishing Bureau's aviation parts processing business, and at the same time establishing Guiyang Company and participating in Shenyang Ruite, which is deeply tied to downstream customers. Consumer goods market expansion:

Transforming military technology into civilian applications. ① Protective materials: Relying on the transformation of military technology to civilian applications, we develop a series of civilian products such as anticorrosive materials and high-efficiency heat-resistant materials to open up new market opportunities. ② Acoustic meta-structural materials: Huaqin Optoelectronics was established, and business progress has been made in the fields of acoustic laboratories, building sound absorbing materials, etc., and the core products are gradually entering the application stage.

Investment advice: We maintain our profit forecast. We expect the company's revenue for 2024-2026 to be 1.215/1.659/2.08 billion yuan, net profit to mother of 0.507/0.671/0.858 billion yuan, corresponding EPS 2.60/3.45/4.41 yuan respectively, and corresponding PE is 39X/30X/23X, respectively. The company has a clear first-mover advantage, batch production brands continue to increase, and actively expand the product matrix around the main business. The performance is expected to continue to grow and maintain the “buy” rating.

Risk warning: risk of fluctuations in military orders, risk of declining gross margin due to product price reduction, risk of products falling short of expectations during trial production, risk of performance predictions and valuation judgments falling short of expectations