Investment highlights

It once again covered China Aviation Science and Industry (02357) to give it a rating that outperforms the industry. The target price is HK$5.26, which corresponds to the 2025 valuation multiplier of 12.7 times P/E. The reasons are as follows:

A listing platform for high-quality assets in the aviation industry, covering scarce targets in the entire aviation industry chain. 1) The company holds 9 first-level subsidiaries, including four A-share listed companies, China Airlines, China Airlines Optoelectronics, and China Aviation Aircraft, as well as a number of unlisted companies such as China Aviation Planning and Shanghai Aviation Finance. It has formed a complete aviation industry chain with complete machines, components, engineering services, and aviation-related investments. 2) China Aviation Technology and Engineering is the only target under the Aviation Industry Group that covers the entire aviation industry chain and has continuous business expansion capabilities, and is scarce.

State-owned enterprise reforms help high-quality development, and the integration of high-quality assets injects vitality. The company integrated high-quality assets of the aviation industry through multiple capital operations to form a platform-based layout covering the complete aviation industry chain.

In 2023, the subsidiary China Aviation Electronics traded shares and acquired China Aviation Electromechanical and changed its name to China Aviation Aircraft Vehicle. After asset integration, it formed an overall listing platform for the aviation airborne business. In 2024, the subsidiary Zhongzhi Co., Ltd. absorbed the subsidiaries Hafei Group and Changfei Group and completed the transaction, becoming the overall A-share listing platform for the aviation industry helicopter business. We believe that the company's active optimization of the industrial structure is expected to further develop the synergy effects of various links to improve efficiency, and high-quality development can be expected.

The main specialty business position is stable, and large domestic aircraft and the low-altitude economy have brought new development opportunities. 1) In special fields, the company relies on the aviation industry's high-quality asset platform for steady development, and has a stable leading position in the product industry such as helicopters, trainers, airborne systems, and connectors. 2) Many of the company's subsidiaries are C919 core suppliers and participate in the supply of airframe structures, airborne equipment, production capacity infrastructure, etc.; at the same time, they actively lay out the low-altitude economy, invest in H-eVTOL product development, and cooperate with local governments. We believe that the company's main specialty business is expected to maintain long-term steady development, and that the active layout of new productivity tracks such as large aircraft and low-altitude economy is expected to open up long-term space for the company.

What is our biggest difference from the market? We believe that as a core asset in the aviation industry that lays out the entire aviation industry chain, the company has a stable position in special fields, actively explores commercial markets, and has strong performance resilience and scarcity. After asset integration, it is expected to further improve efficiency and usher in value revaluation.

Potential catalyst: Orders and deliveries exceeded expectations.

Profit forecasting and valuation

We expect the company's 2024/2025 EPS to be 0.35/0.41 yuan, respectively, and a CAGR of 16%. The current company stock price corresponds to 2024/2025 11.5/9.4x P/E. Considering the company's better future growth and high performance certainty, we once again covered the “outperforming industry” rating and gave a target of 5.26 yuan based on the SOTP valuation method, corresponding to 15.0/12.7x P/E in 2024/2025, with a potential increase of 18%.

risks

1) Risk of fluctuating demand for special products; 2) Risk of product development.