Operating income and net profit returned to the mother resumed growth after deduction, maintaining the “increase in holdings” rating
The company released its 2019 annual report. It achieved operating income of 239 million yuan during the period, an increase of 37.17% over the previous year; achieved net profit of 485.998 million yuan, a decrease of 24.76% over the previous year, mainly due to the sharp decrease of 91.2% of the value-added tax refund in 2019 compared to 23.3949 million yuan in 2018; net profit of Fumo after deduction was 393.334 million yuan, an increase of 10.35% over the previous year; the company's revenue exceeded expectations but Fumo's profit fell short of expectations. After two consecutive years of decline in 2017 and 2018, the company's operating income and net profit returned to the parent after deduction resumed growth in 2019. We believe that the company is expected to break out of its operating trough, and its performance will grow rapidly with the batch installation of downstream helicopters, etc. We expect the company's EPS in 2020-2022 to be 0.37/0.46/0.56 yuan respectively, and the target price range is 18.32-18.69 yuan, maintaining the “increase in holdings” rating.
Revenue from aeronautical inertial navigation products and aero engine electronic products both achieved significant increases
During the period, the company's aeronautical inertial navigation products achieved revenue of 168 million yuan, a sharp increase of 62.71% over the previous year, and the gross profit margin was 42.62%, down 0.48 percentage points from the previous year. Among them, the revenue of flexible Jetlink inertial integrated navigation systems increased by 31.75 million yuan compared to 2018, an increase of 190.25%; the revenue of fiber-optic Jetlink inertial navigation systems increased by 32.55 million yuan compared to 2018, an increase of 827.23%; these two contributed to the main increase in aviation inertial navigation business revenue. Aero-engine electronics products achieved revenue of 61.25 million yuan, a sharp increase of 85.63% over the previous year. The gross profit margin was 47.25%, down 1.95 percentage points from the previous year. Among them, revenue from aero engine parameter collectors increased by 9.942 million yuan over 2018, an increase of 47.91%; revenue from flight control computers increased 18.310,800 yuan from 2018, an increase of 149.56%.
Increased prosperity in downstream sectors such as helicopters has led to the company's business growth, and investment in R&D has increased
As the construction of China's Army Air Force continues to accelerate, and the linear 20 utility helicopters have begun to be installed in batches, and it is expected that the company's aeronautical inertial navigation products and aero-engine electronic products will continue to grow rapidly. According to the 2019 annual report, the engine electronic control system independently developed by the company has completed the demonstration verification of a project, and has been iteratively updated for two generations. It is one of the few manufacturers in China that has mastered all the technology from the actuator, overall control system, engine test run to the overall engine. The helicopter power platform technology independently developed by the company has entered the preliminary research stage. In the next step, the company will accelerate the development and acceptance of this technology. As the R&D project progressed, the company invested 26.93 million yuan in R&D during the period, a significant increase compared to 4.28 million yuan in the same period in 2018.
Aeronautical nuclear companies have joined the military to break out of a trough in operation. Future growth can be expected, and “increase holdings”
The company's business revenue in 2019 increased sharply, driven by demand in the downstream sector, and other income such as VAT refunds declined sharply compared to 2018. Based on this situation, we raised the company's revenue expectations and R&D investment, and lowered other earnings expectations. We expect the company's revenue for 2020-2022 to be 333/435/538 million yuan (pre-2020 value was 246 million yuan), net profit of the mother was 0.63/0.79/097 million yuan (pre-2020 value was 82 million yuan), and the corresponding EPS was 0.37/0.46/0.56 yuan respectively (pre-2020 value was 0.48 yuan). According to the comparable company's 2020 Wind unanimous forecast of 49.79 times the average PE valuation, the company was given 49.5-50.5 times the target PE valuation in 2020, corresponding to the target price range of 18.32-18.69 yuan, maintaining the “increase in holdings” rating.
Risk warning: military spending growth may fall short of expectations, military product listing progress or failure to meet expectations, military industry reform or failure to meet expectations.