Results for the first three quarters of 2024 are in line with market expectations

The company announced results for the first three quarters of 2024: operating income of 9.234 billion yuan, -28.74% year on year; realized net profit of 0.562 billion yuan, +9.39% year over year; realized deducted non-net profit of 0.201 billion yuan, or -57.48% year on year.

Looking at a single quarter, 3Q24 achieved revenue of 1.522 billion yuan, -54.14% year over month, and -60.95% month on month; net profit to mother 0.312 billion yuan, +149.41% year over year, and +193.44% month on month. The results are in line with market expectations.

Development trends

Aerospace Electrician's presentation affects the scale of revenue, and the combination of investment income and improved asset quality drive high profit growth. 1) The reporting period for the company's aerospace products was affected by the adjustment of user settlement plans. Delivery declined compared to the same period last year, leading to fluctuations in revenue. Furthermore, the subsidiary Aerospace Electric also had a certain impact on the revenue scale after it was released in August. 2) The company's net profit for the 3Q24 quarter increased by 149.41% year-on-year, mainly due to the investment income of 0.281 billion yuan generated by Aerospace Electrician after publication. Furthermore, after Aerospace Electrician's announcement, the quality of the company's assets improved, further boosting the year-on-year increase in 3Q24 net profit.

Profitability has increased steadily, and cost-side costs have expanded. 1) The company's gross margin increased by 3.11ppt to 22.80% year on year in the first three quarters of 2024, of which 3Q24 gross margin increased 14.1 ppt to 39.8% year on year. We believe it was mainly due to business restructuring after divesting the wire and cable business. 2) The company's expense ratio increased by 4.50ppt to 19.39% year-on-year during the first three quarters of 2024. Of these, the R&D/management expenses ratio increased by 1.54/2.42ppt, respectively. We believe this was mainly due to a contraction in revenue scale. 3) The company's net interest rate for the first three quarters of 2024 increased 2.13ppt to 6.08% year-on-year. We believe it was mainly due to the overall improvement in asset quality and 3Q24 one-time investment income.

The divestment of aerospace electricians focuses on the main business and increases capital to support the development of the electromechanical component business. 1) In August 2024, the company transferred 51% of Aerospace Electric Company's shares and completed the registration procedure for market supervision changes. The company no longer submitted consolidated statements for Aerospace Electric Company, and achieved the restructuring of the company's main business and focus on the main business. According to the company's 2023 annual report, after excluding aerospace electricians, the company's revenue and net profit increased 15.81%/32.66% year-on-year respectively in 2023. 2) In August 2024, the company announced that it plans to increase the operating assets of the MEMS mechanical and electrical components business to its wholly-owned subsidiary, Primmen and that it plans to change its name to Beijing Aerospace Times MEMS Technology Co., Ltd., to support the transformation of MEMS's scientific research achievements and market development.

Profit forecasting and valuation

Considering the improvement in asset quality after the divestment of the company's wire and cable business, we raised the company's net profit forecast for 2024/2025 by 5.0%/5.0% to 0.609/0.716 billion yuan. The current stock price corresponds to 49.0/41.6x P/E for 2024/2025. We maintained our outperforming industry rating. Considering the upward shift in the sector's valuation center, we raised our target price by 15% to 10.40 yuan, corresponding to 47.9x P/E in 2025, with a potential increase of 15%.

risks

Fund-raising project construction falls short of anticipated risk; downstream demand falls short of expected risk; market competition increases risk.