Incident: The company released its 2024 quarterly report on April 28. 1Q24 achieved revenue of 0.18 billion yuan, YoY +26.0%, net profit to mother of 0.033 billion yuan, YoY +249.0%, minus non-net profit of 0.03 billion yuan, YoY +235.2%. The performance was in line with market expectations. The rapid growth in 1Q24's performance is mainly due to the large delivery of high-margin products such as guidance equipment and solid engine power and control products. Our comprehensive review is as follows:
Net profit from 1Q24 surged 249%; R&D investment continued to increase. In 1Q24, the company achieved revenue of 0.18 billion yuan, YoY +26.0%, net profit to mother 0.033 billion yuan, YoY +249.0%, after deducting 0.03 billion yuan of non-net profit, and YoY +235.2%. In terms of profitability, 1Q24 gross margin increased 9.7ppt to 43.2% year over year; net margin increased 11.4ppt to 19.1% year over year. In terms of expenses, during the 1Q24 period, the cost rate decreased by 4.5 ppt to 18.6% year on year, R&D expenses doubled to 0.02 billion yuan year on year, and R&D expenses increased 4.0 ppt to 10.7% year on year. The financial expense ratio was -3.8% compared to 2.3% in the same period last year. The main reason for the rapid growth in 1Q24's performance is that 1Q24 revenue mainly comes from high-margin products such as guidance equipment and solid engine power and control products; at the same time, cash management revenue increased and financial expenses declined.
Multi-type products have been developed and approved in 23 years; project reserves are abundant and growth momentum is strong. The company increased R&D investment, and R&D expenses doubled year-on-year in 1Q24. In 2023:1) The company completed scientific research tests on multi-type products and overcome many technical problems. A total of 12 products were transferred from scientific research to mass production. Through pre-research and bidding, the number of research projects increased by 25 compared to the end of the previous period by successfully winning the bid or receiving a single source or expansion; at the end of the period, nearly 50 pre-research projects were underway, and several projects achieved phased results. 2) Key technology projects have overcome many technical problems. Major breakthroughs have been made in research on key technologies such as next-generation high-energy insensitive propellants and castable butadiene hydroxyl liners, which have been successfully applied to key models. Through continuous R&D and innovation, the company's product models have entered the batch production stage one after another; at the same time, through continuous research on new models, the long-term growth momentum is strong.
Actively explore new customers & products, and open up room for long-term growth. In 2023, the company focused on customer needs and actively expanded new products, new projects, new markets and new fields, adding 8 new projects in new fields within 23 years. 1) In the field of ammunition equipment, the company has achieved phased results in the development of products such as 2005/XF and 2303/JK, and has entered the bidding stage. 2) In the aerospace field, high-fuel-speed power module products and drone boosters have been delivered in large quantities; multiple medium and large caliber series power module products have been added; formulations of a new generation of high-energy insensitive propellant have been successfully tested; and intelligent control products such as engine ignition control and combat security for type 4 guidance equipment have been expanded. The company actively expands new customers and products, and opens up room for long-term growth.
Investment advice: The company is the overall unit for ammunition equipment and the core supplier of guidance equipment components in China. It has sufficient follow-up projects, and future growth is secure. It will continue to benefit from the intelligent development of ammunition and its consumption properties. At the same time, the company actively implemented employee stock ownership plans, demonstrating confidence in development. Considering the pace of industry orders and the company's continuous development of new products, we fine-tuned the company's net profit from 2024 to 2026 to be 0.19 billion, 0.24 billion, and 0.29 billion yuan, respectively. The corresponding PE was 42x/33x/27x, respectively, maintaining the “recommended” rating.
Risk warning: downstream demand falls short of expectations; model batch production progress falls short of expectations; product price reduction, etc.