Incident: The company released its three-quarter report for 2024, and achieved operating income of 16.567 billion yuan, -20.09% year-on-year; net profit to mother of 1.203 billion yuan, -27.10% year-on-year.

Key points of investment

Performance declined year-on-year due to a combination of factors such as changes in the industry environment, market demand adjustments, and changes in cost and profitability: factors such as insufficient expectations of industry policy, market environment, and order contract adjustments had an impact on defense business revenue. Under this influence, the first three quarters of 2024 achieved operating income of 16.567 billion yuan, or -20.09%; net profit to mother of 1.203 billion yuan, or -27.10% year-on-year. Among them, the third quarter also had a certain drag on full-year results. 2024Q3 achieved total operating income of 5.089 billion yuan, or -24.61% YoY, and net profit of 0.3 billion yuan, or -52.10% YoY.

In addition, the company's gross sales margin decreased by 6.82 pct year on year, and net sales margin also decreased by 32.19 pcts compared to the same period last year, reflecting challenges in cost control and profitability.

The main accounting indicators varied, and the overall balance of accounts receivable decreased significantly: as of the third quarter of 2024, the company's notes receivable decreased by 68.06% year-on-year, mainly due to a decrease in the balance due to a decrease in the number of notes received and the balance due to the maturity and payment of the notes; the balance of other accounts receivable increased by 63.56%, mainly due to unrecovered escrow fees in the third quarter; contract assets increased mainly due to the confirmation of warranty payments for sales contracts executed during the current period; the balance decreased by 36.94%, mainly due to the maturity and acceptance of notes; contracts Liabilities decreased by 41.74 per cent, mainly due to the reduced balance due to the delivery of products as agreed in the contract. As of the third quarter of 2024, investment income increased by 40.40%, mainly due to the increase in profits of joint ventures and an increase in subsidiary debt restructuring income; and a 355.77% reduction in asset impairment losses, mainly due to inventory price decline losses and an increase in fixed asset impairment preparations.

The strategic layout of the industry is progressing steadily, and it is expected to benefit from aviation equipment release: China Aviation Electronics has a comprehensive product spectrum, a wide range of application fields, and a relatively complete avionics and mechatronics industry chain. It is a leading company in avionics systems and avionics systems products. The company focuses on airborne systems such as flight control systems, radar systems, photoelectric detection systems, etc., and provides supporting system-level products for many domestic and foreign aviation OEMs and other military product platforms. It has leading domestic avionics product R&D and manufacturing capabilities. During the “14th Five-Year Plan” period, the release of next-generation aviation equipment was a major development opportunity for the company. At the same time, the merger of the company absorbed China Aviation Electromechanical, and its supply chain management capabilities continued to be enhanced, consolidating its dominant position in the market.

Profit forecast and investment rating: The company's performance is slightly under pressure, so we slightly adjusted our previous forecast. The company's net profit for 2024-2026 is 2.049/2.372/2.672 billion yuan, the previous value is 2.148/2.5/2.834 billion yuan, corresponding to PE 31/27/24 times, respectively, maintaining the “buy” rating.

Risk warning: 1) market competition risk; 2) technological innovation risk; 3) reform and business transformation risk; 4) cash flow risk.