Incident: The company released its report for the third quarter of 2024. The first three quarters achieved operating income of 25.956 billion yuan, a year-on-year decrease of 1.33%; realized net profit to mother of 0.726 billion yuan, a year-on-year decrease of 29.56%.

The industry fluctuated significantly. In the first three quarters of 2024, Q3 revenue and return to mother fell significantly. In the first three quarters of 2024, the company achieved operating income of 25.956 billion yuan (-1.33%) and net profit to mother of 0.726 billion yuan (-29.56%). The main reason was that investment income decreased by 68.32% year over year, financial expenses increased by 125.36%; net profit after deducting non-attributable mother was 0.682 billion yuan (-19.62%), mainly due to increased financial expenses and increased taxes. Looking at a single quarter, 24Q3 achieved revenue of 7.409 billion yuan, -13.18% YoY/-39.65% month-on-month; net profit to mother was 0.131 billion yuan, or -57.01% YoY/-70.12%.

The company expects to achieve revenue of 49.762 billion yuan in 2024 (up 13.78% from the actual value in 23), including revenue from aero engines and derivatives of 46.482 billion yuan (+13.67%), foreign trade export subcontracting of 2.079 billion yuan (+6.72%), non-aviation products and other businesses 0.633 billion yuan (+141.38%); estimated net profit to mother of 1.512 billion yuan (+6.40%).

Continuously optimize operating efficiency and maintain stable profitability

In terms of profitability, the company's gross sales margin for the third quarter was 12.04% (-0.06pct), the net margin was 22.05% (-1.08pct), and the period expense ratio was 8.17% (+0.59pct). The sales/management/R&D expenses ratio was 1.69% (+0.28pct)/4.02% (-0.11pct)/1.30% (-0.24pct), respectively. The company's profitability remained stable.

Furthermore, at the end of 2024Q3, the company's accounts receivable were $30.312 billion, up 127.44% from the beginning of the period; inventory was 40.227 billion yuan, up 35.61% from the beginning of the period; contract liabilities were 6.261 billion yuan, a decrease of 47.28% from the beginning of the period, mainly due to product delivery confirmation revenue. It can be seen from this that the company continues to actively prepare goods and prepare production to provide a guarantee for completing tasks throughout the year.

Profit forecast: The company is mainly engaged in aero engine and derivatives business, foreign trade export subcontracting business, non-aviation products and other businesses. The aviation industry chain continues to recover, and the performance is expected to continue to grow. The company's net profit from 2024 to 2026 is estimated to be 1.517 billion yuan, 1.912 billion yuan, and 2.297 billion yuan, respectively, with corresponding EPS of 0.57, 0.72, and 0.86 yuan, and corresponding PE of 74.66, 59.26, and 49.32 times, maintaining the “recommended” rating.

Risk warning: macroeconomic development risk, production and operation risk, defense budget falling short of expectations.