Focus on the field of aviation equipment and special refrigeration, with a number of core technologies. The company was established on December 28, 2007, completed its restructuring on June 25, 2019, and successfully landed on Kechuang on July 31, 2020. It is the only professional R & D and manufacturing base of aviation oxygen system and airborne fuel tank inerting protection system in China, and it is also the largest aircraft auxiliary fuel tank and the leading R & D manufacturer of special refrigeration equipment in China. In 2020, the company's operating income was 831 million yuan, an increase of 23.20% over the same period last year, and the net profit was 194 million yuan, an increase of 71.31% over the same period last year. Since 2017, the gross profit margin has shown an increasing trend, rising to 39.71% in 2020; the expense rate has decreased year by year, to 22.23% in 2020, a decrease in 1.13pct compared with the same period last year.

Aviation airborne equipment has a prominent position in the field of subdivision, and the replacement and installation of military aircraft has been accelerated. The company's aviation products are equipped with all military aircraft in research and in service, as well as some civil aircraft. (1) the only aviation oxygen system in China, the inerting protection base of airborne fuel tank, and the largest manufacturer of auxiliary fuel tank in China, benefiting from the acceleration of military aircraft replacement; (2) with the intergenerational improvement of military aircraft, a new fuel tank inerting system has been added, and the value of other systems has also been improved, and the matching is expected to show a trend of simultaneous increase in quantity and price. (3) the maintenance market is also broad, and the company's expansion of the maintenance market of related products is expected to become a new growth point for the company's future development; (4) based on the advantages in the military field, it is expected to expand a broader civil aviation market in the future. Based on the above logic and with reference to the company announcement, it is estimated that the volume of transactions related to the sales of goods sold by the Aviation Industry Group will grow by 50% in 21 years, we believe that the company's aviation products will continue to grow faster than the aviation equipment industry.

The domestic leading manufacturer of special refrigeration equipment has a broader market for military and civilian use. In the military field, the company has obvious advantages in core technology and complete series spectrum, and its products mainly include square cabin air conditioning, armored air conditioning, ship air conditioning, cold liquid equipment and other products, realizing the coverage of the whole army of the Air, Army, Navy and Rocket Army. With the increase of penetration in the military field and the growth of the company's market share, the refrigeration field is expected to contribute higher performance flexibility. In addition, the company develops civil special refrigeration equipment through the transformation of military technical achievements, and the market is even broader.

The reform has achieved remarkable results, and the shareholding of the core management ensures long-term development. The profit growth rate of the company from 2016 to 2020 is significantly higher than the revenue growth rate, and the net interest rate shows a trend of increasing year by year, which is due to the drastic reform in the early stage of the company, the implementation of a number of measures such as streamlining personnel and withdrawing from non-core main businesses, and the improvement of the rate of overlay expenses. Secondly, the company introduced War Investment and implemented employee stock ownership in 2018. At present, the core management has stock ownership, which has a strong driving force to reduce costs, increase efficiency and improve quality, and the company's long-term development is promising.

Investment advice: considering the high prosperity of aviation equipment, the higher growth rate of the company's aviation products than the industry, the greater performance flexibility contributed by the refrigeration business, and the remarkable results of the company's previous reforms, we expect the company's 2021-2023 net profit to be 2.75,4.08 and 584 million yuan respectively, corresponding to PE of 37x, 25x and 17x, continue to recommend and maintain the "Buy-A".

Risk hint: the progress of military aircraft replacement is not as expected, the competition pattern in the refrigeration field is deteriorating, and civil aviation orders and domestic substitutions are not up to expectations.