[Core view] A leading enterprise in aviation development control systems, deeply involved in the aviation development industry chain. The company is a core enterprise in the field of aero engine control systems. Its main business covers the three major businesses of two-plane control systems, international cooperation, and control system technology derivatives. The company is deeply involved in the field of aero engines, has a full spectrum of aero engine control system development, production and support technology, and is deeply involved in military and commercial development. It is at the core of the industrial chain, so we give the company 34 times PE in 25 years. We forecast that the company will achieve revenue of 5.902/6.672/7.698 billion yuan in 2024-2026, up 10.8%/13.0%/15.4% year on year; net profit to mother will be 0.814/0.935/1.079 billion yuan respectively, up 12.1%/14.8%/15.4% year on year. Covered for the first time, a “gain” rating was given.

Main line increase 1: The gap between total volume and generation is obvious. The lineup is speeding up and shifting gears, and the long-term growth needs of the aviation development industry chain are determined. Looking at the moment, there is still a large quantitative and generational gap between China's aviation equipment and the US. At the same time, mass production of the new generation of military equipment is being accelerated, and future increments are determined; as large batches of military development enter the maintenance period, the market opens up after aero engine maintenance to provide a new portion of the increase; in the long run, commercial development and production are combined with orders for large domestic aircraft, and the aero-engine circuit has broad prospects.

Main line increase 2: Aircraft engine control systems account for a high proportion of value, industry barriers are obvious, and the company's leading position is stable. Aero engines have characteristics such as high technical requirements and long research timelines. They are typical high-barrier racetracks. As a leading aviation control system company, the company collaborates with 614 production and research institutes, and is in a dominant position in the industry. Compared with aero engines, aviation control systems account for 18% of the value. According to estimates, we expect the trial production scale of military aviation control systems to reach 287.031 billion yuan in the next 10 years.

Main line increase 3: The company is expected to fully benefit from the recovery of civil aviation and the landing of large domestic aircraft. The company's international export business has grown significantly, and it has reached long-term cooperative relationships with international aviation giants such as GE and Honeywell. At the same time, according to COMAC's forecast, the size of the international civil aviation market is nearly 6.6 trillion US dollars in the next 20 years, and orders for the large domestic aircraft C919 have already broken through 1,000 units. As a core product line, it will drive further breakthroughs in the domestic civil aviation market. Therefore, driven by the boom in domestic and international civil aviation markets, the company is expected to fully benefit.

Risk warning: risk of R&D falling short of expectations; risk of demand fluctuations; geopolitical risk; exchange rate risk.