The company released the “Report for the Third Quarter of 2024”. In the first three quarters, it achieved revenue of 16.567 billion yuan, -20.09% YoY; net profit of 1.203 billion yuan, or -27.10% YoY. 24Q3 achieved revenue of 5.089 billion (Yoy -24.61%, Qoq -12.79%) and realized net profit of 0.3 billion yuan (Yoy -52.10%, Qoq -33.25%) in a single quarter.

24Q3 performance was under pressure, and gross margin increased month-on-month. The first three quarters achieved revenue of 16.567 billion yuan, -20.09% YoY; realized net profit of 1.203 billion yuan, or -27.10% YoY. 24Q3 achieved revenue of 5.089 billion (Yoy -24.61%, Qoq -12.79%) and realized net profit of 0.3 billion yuan (Yoy -52.10%, Qoq -33.25%) in a single quarter. In terms of profitability, in the 24Q3 quarter, gross sales margin was 27.72%, a year-on-year decrease of 2.03 pcts, and an increase of 1.83 pcts month-on-month. On the cost side, 24Q3 generated sales expenses (0.06 billion, -12.30% YoY), management expenses (0.441 billion, -20.10% YoY), and financial expenses (0.032 billion, +184.73% YoY). Company R&D expenses (0.519 billion, -23.05% YoY). The 24Q3 three-item cost rate was 10.48%, up 1.01 pct year on year and 1.63 pct month on month. The company's credit impairment loss (-0.014 billion, last year -0.027 billion); asset impairment loss -0.044 billion, mainly due to inventory depreciation losses and increased preparations for impairment of fixed assets. The company's net profit margin on sales was 6.60%, down 3.14 pct year on year and 1.84 pct month on month. 2024 business plan: Revenue is expected to be achieved (28.522 billion, -1.67% year over year). Among them, defense business revenue declined due to factors such as industry policies, market environment, and insufficient order contract adjustments; other business revenue continued to grow. Profit side: The company adheres to the concept of high-quality development, continues to reduce costs and expenses, continuously improve economic efficiency, and is expected to achieve total profit in 2024 (2.437 billion, +8.0% year over year).

Related transactions are expected to continue growing in 2024. Judging from the related transaction announcements issued by the company, the company expects to sell 22 billion of products to related parties within the Aviation Industry Group in 2024, an increase of 2.33% over the expected amount generated in 23, and an increase of 23.94% compared to the actual amount generated in 23, maintaining the growth trend.

The estimated deposit limit is 13 billion, up 7.44% from the estimated amount in '23, and 19.78% higher than the actual amount accrued in '23. We believe that there is a strong demand for aviation equipment upgrades. Among them, airborne systems are a core key area for aviation equipment upgrades, and it is expected to maintain a growing trend.

The launch of the flagship platform for the airborne industry has been completed to create a world-class supplier of aircraft airborne systems. On March 17, 2023, China Aviation Electromechanical terminated its listing; on April 13, 2023, the share exchange, absorption and merger implementation of this transaction was completed. Meanwhile, on June 26, 2023, the 5 billion yuan raised supporting capital from this merger was collected to be used for the construction of 10 projects, including projects to increase the production capacity of airborne products such as aviation gas intake subsystems, and to supplement the company's working capital after the merger. After the merger of AVIC Electronics and AVIC Electronics, it will be the main platform for airborne systems, which will facilitate internal coordination and integration of airborne systems and promote performance improvement. Airborne products account for more than 40% of the total machine value, and the market space is huge. Furthermore, in this financing plan, Shen Fei and Cheng Fei each subscribed for 0.18 billion yuan to strengthen ties with the main airborne product platform at the capital level. We believe that the merger plan for listed companies is the first step in integrating resources and achieving high-quality development in airborne systems. As the restructuring of research institutes continues to advance, there is still room for asset securitization in the future, and we are optimistic about the development of the company after the merger.

Profit forecast: The company's net profit for 2024/2025/2026 is estimated to be 2.104/2.31/2.515 billion yuan, corresponding to a valuation of 30, 27, and 25 times, maintaining a “highly recommended” rating.

Risk warning: Product orders fell short of expectations, and reform progress fell short of expectations.