Incident: The company released its 2024 three-quarter report. In the first three quarters, it achieved operating income of 0.663 billion yuan, an increase of 21.65% year on year; net profit to mother was 0.051 billion yuan, a year-on-year decrease of 46.52%.

Revenue growth is strong, but profit side is under pressure in the short term

In 2024, the company grasped the development opportunities of the low-altitude economy industry and rapidly deployed to expand the company's business. Affected by this, the company achieved operating income of 0.663 billion yuan (+21.65%), net profit to mother of 0.051 billion yuan (-46.52%), and net profit after deducting non-return to mother of 0.047 billion yuan (-47.59%) in the first three quarters. Looking at a single quarter, 24Q3 achieved revenue of 0.207 billion yuan, -6.16% /month-on-month -10.64%; net profit to mother was 0.011 billion yuan, -75.58% /month-on-month +2.61%.

In the first three quarters of 2024, the company's sales/management/finance/R&D expenses were 0.008 billion yuan (+231.22%) /0.089 billion yuan (+44.91%) /0.056 billion yuan (+31.39%) /0.047 billion yuan (+24.26%), respectively. 1) Sales expenses are growing the fastest, but mainly due to the fact that the base is too small; 2) Management expenses have increased significantly, mainly due to a sharp increase in total employee remuneration (introduction of high-end talents in aviation composites, drones, etc.) and an increase in fixed asset depreciation and amortization expenses due to the closure of some fund-raising projects; 3) R&D investment continues to increase, and the company is vigorously promoting the construction of “drone assembly and spare parts manufacturing projects” and “two-plane projects” to strengthen development efforts in the fields of drones, large aircraft, precision welding, etc.; 4) Demand for stocking has increased procurement of raw materials, leading to mobility Capital loans have increased, and financial expenses have risen.

Profitability declined, but active preparation of goods and production provided a guarantee for subsequent performance growth. Although the company's operating income continued to grow rapidly, in terms of profitability, the gross margin for the first three quarters was 40.44% (-3.01pcts) and the net interest rate was 7.30% (-8.27pcts). Various expenses increased significantly, leading to a decline in profitability. At the end of 2024Q3, the company's accounts receivable were $0.762 billion, up 14.43% from the beginning of the period, mainly affected by customer payment settlement models; inventory was $0.828 billion, an increase of 82.89% over the beginning of the period, mainly affected by order preparation requirements and delivery methods; contract liabilities were 0.018 billion yuan, an increase of 97.35% over the beginning of the period. The company is actively preparing goods and preparing production to guarantee subsequent performance growth.

According to the breakdown analysis of the main business in the first half of the year, 2024H1's aviation tooling business revenue was 0.237 billion yuan (+156.56%), the aerospace parts and drone business achieved revenue of 0.208 billion yuan (-7.29%), and the aviation auxiliary tools and other business achieved revenue of 0.01 billion yuan (+567.08%). The company's major sales contracts mainly include: 1) The aerospace parts and drone business promotes the rapid development of industrial drones and seizes low-altitude economic development opportunities. On January 29, 2024, the company and Huayouxin (Shanghai) Drone Technology Co., Ltd. signed a “Drone Procurement Contract”. The tax-inclusive amount of the contract was RMB 0.085 billion, and the subject of the contract was the DL-U20 drone system. On August 6, 2024, Zigong Guanglian, a wholly-owned subsidiary of the company, signed a “Procurement Business Contract” with a unit under the Aviation Industry Group. The contract amount was RMB 0.056 billion. The subject of the contract was RMB 0.056 billion for the composite wing section of a batch of large-scale fixed-wing drones. 2) The aviation tooling business continues to help the company develop in the fields of large-scale composite parts molding and assembly of most parts of large domestic aircraft. On June 20, 2024, the company and Shanghai Aircraft Manufacturing Co., Ltd. signed the “Framework Agreement 2 for the Development of Composite Tooling for the C929 Widebody Passenger Aircraft Project”. The tax included amount of the contract was not more than RMB 0.105 billion. The subject of the contract was composite tooling for the C929 project.

The company introduced a fixed increase plan, and cooperation projects are progressing steadily, and performance is expected to recover rapidly 1) Recently, the company introduced a fixed increase plan. The number of shares issued this time will not exceed 0.089 billion shares (including capital), and the total capital will not exceed RMB 1.134 billion (including capital). The capital is intended to be used for projects related to the company's main business, including the proposed capital investment amount of 0.696 billion yuan for the Shanghai Civil Aviation Production Base project, and 0.098 billion yuan of capital raised for the Shanghai R&D center construction project, while supplementing the working capital of 0.34 billion yuan. The company plans to adopt fixed increases to achieve the goals of further expanding the company's production capacity, enhancing the company's R&D capabilities, and optimizing the balance and liability structure. 2) Promotion of large aircraft cooperation projects. The company signed a strategic cooperation agreement with Shanghai Lingang New Area Aviation Industry Development Co., Ltd. to jointly accelerate the construction and layout of the high-end industrial chain for large aircraft, further enrich the product categories and application fields of aviation tooling and composite parts, and enhance the company's core competitiveness. 3) Industry-academia integration. The company signed the “Aviation Equipment Industry Technology Research Institute Co-Construction Agreement” with Harbin Institute of Technology. The company plans to invest RMB 30 million to jointly build the Aeronautical Equipment Industry Technology Research Institute with Harbin Institute of Technology to carry out in-depth cooperation in the fields of aeronautical tooling, aeronautical composites, aviation parts, etc., to promote the deep integration of industry, education and research in the aviation industry.

Profit forecast: The company is a high-tech enterprise in the aviation industry. It is an important private enterprise in the field of drones, large aircraft and eVTOL. The medium- to long-term performance is expected. The company's net profit from 2024 to 2026 is 0.119, 0.201, and 0.277 billion yuan respectively, corresponding EPS is 0.40, 0.68, and 0.93 yuan, respectively, and corresponding PE is 62.48, 36.99, and 26.85 times, respectively. The first coverage was given a “recommended” rating.

Risk warning: macroeconomic development risk, market or business operation risk, defense budget falling short of expectations