Incident: The company released its 2023 performance report. It is expected to achieve revenue of 46.248 billion yuan, +11.18% year over year; expected to achieve net profit of 3.08 billion yuan, +30.51% year over year; estimated net profit without return to mother of 2,911 billion yuan, +32.81% year over year; basic earnings per share. We believe that the company's defense products are in high demand. Currently, the company has implemented the second phase of equity incentives and continues to promote low-cost sustainable development. Revenue and profit have increased in 23 years, and the performance is in line with expectations.
Build an integrated platform for “research, manufacture and repair”
In 2022, the company acquired shares in Jilin Airlines and increased its capital. Its main business is aviation defense equipment maintenance, and it has the ability to repair certain J-type aircraft. At the same time, Jihang may rapidly improve production and operation standards and aviation equipment maintenance capabilities by absorbing the manufacturing capabilities and experience of China Airlines Shenfei's complete aircraft (in 2022, the net profit margin of Jihang reached 4.4%, +1.97 pcts year on year). In January 2023, the company announced that it plans to increase its capital to invest in the Yangzhou Collaborative Innovation Research Institute of the Shenyang Aircraft Design Research Institute to promote the system integration of design, R&D, manufacturing, and maintenance service resources. In December 2023, the company decided to raise capital (planned to be no more than 4.2 billion yuan) to further enhance the company's aviation maintenance service guarantee capabilities and build a solid foundation; at the same time, complete the company's partial relocation and construction, and capacity building for composite and titanium production lines. We believe that through the acquisition of Ji Airlines, the investment in research institutes and fixed capital raising construction projects, the company is conducive to improving batch repair capabilities and the ability to guarantee scientific research and production tasks. The company is expected to establish a full-life cycle maintenance system for aviation equipment, complete the vertical extension of the industrial chain, open up a broad back-end maintenance market space, bring new valuation increases, become an integrated platform for “research, manufacturing and repair”, and further strengthen its leading position in the industry.
Leading suppliers of complete fighter aircraft are expected to fully benefit from mass production/model research and demand companies that mainly manufacture aviation defense equipment products. The current model products cover three- and fourth-generation air force fighters/carrier-based aircraft. We believe that the demand for leapfrog development of defense equipment continues to rise in the 14th Five-Year Plan. The company's main aviation defense equipment products meet the construction needs of China's strategic air force. The development progress of its mass production demand is expected to further increase and accelerate, and the company's performance is expected to improve rapidly.
Profit prediction and rating: As a leading fighter enterprise in China, we comprehensively consider multiple factors such as the company's current product fleet volume, future model pipeline, back-end maintenance market incremental space, and military pricing mechanism reform to drive performance release, and believe that the company's short, medium- and long-term development trend is positive. The company implemented the second phase of the equity incentive plan on November 28, 2022, and stable performance can be expected. Considering that the company has released its 2023 performance report, and considering that there is some uncertainty about the progress of the company's fund-raising projects, we expect the company's projected net profit for 2023-2025 to be 30.08/38.50/5.050 billion yuan (original value was 30.23/40.54/5.150 billion yuan), corresponding to PE of 34.10/26.65/20.31x, maintaining a “buy” rating.
Risk warning: risk of fluctuations in military business; risk of developing new models of equipment falling short of expectations; risk of product price; risk of business conditions and profitability falling short of expectations; quick performance reports are preliminary accounting data and have not been audited by an accounting firm. The specific data is based on the company's official 23-year report.