Core views

On July 10, the Information Office of the State Council held a press conference on the “Promoting High-Quality Development” series. Minister of Transport Li Xiaopeng, Director Song Zhiyong of the Civil Aviation Administration of China, Fei Dongbin, Director of the State Railway Administration, and Zhao Chongjiu, Director of the State Post Office, attended the briefing and answered questions from reporters. Currently, the low-altitude economy based on traditional general aviation and the new drone industry is booming. The company continues to stabilize its leading position in air traffic control. The two major sectors of traditional urban road traffic management and urban governance are developing well; accelerating the development of new airport tracks, accelerating research on new air traffic control technology and the development and verification of new airport products, leading localization innovation, and gradually improving the “two wings go hand in hand” development pattern of air traffic control and airports. Facing a national strategy for a low-altitude economy, relying on the advantages of air traffic control systems, there is broad room for future growth.

occurrences

On July 10, the Information Office of the State Council held a press conference on the “Promoting High-Quality Development” series. Minister of Transport Li Xiaopeng, Director Song Zhiyong of the Civil Aviation Administration of China, Fei Dongbin, Director of the State Railway Administration, and Zhao Chongjiu, Director of the State Post Office, attended the briefing and answered questions from reporters. Currently, the low-altitude economy based on traditional general aviation and the new drone industry is booming. The total number of drone companies with currently valid civil unmanned aerial vehicle operation certificates exceeds 0.014 million, and the number of people with drone operator licenses exceeds 0.225 million. In the first half of this year, there were nearly 0.608 million newly registered drones, an increase of 48% over the end of last year. The cumulative number of drone flight hours reached 9.816 million hours, an increase of 0.134 million hours over the same period last year.

Brief review

1. The low-altitude economy has entered a new stage of rapid growth. The company's business performance is growing steadily. Currently, the total number of drone companies with current and valid civil unmanned aerial vehicle operation certificates exceeds 0.014 million, and the number of people with drone operator licenses exceeds 0.225 million. In the first half of this year, there were nearly 0.608 million newly registered drones, an increase of 48% over the end of last year. The cumulative number of drone flight hours reached 9.816 million hours, an increase of 0.134 million hours over the same period last year. In 2024, Q1 achieved operating income of 0.245 billion yuan, a year-on-year increase of 38.62%, net profit due to mother -0.016 billion yuan, -0.032 billion yuan for the same period last year, net profit of 0.018 billion yuan after deducting non-return net profit of 0.018 billion yuan, and -0.032 billion yuan for the same period last year. The increase in revenue was mainly due to an increase in sales revenue in the fields of traffic management and urban road traffic management in civil aviation; the increase in profitability was mainly due to an increase in sales revenue in traffic management and urban road traffic management in civil aviation. The company's overall business situation has maintained a steady, moderate and positive trend. Currently, market development efforts are being stepped up to seize the industry's continuing positive development opportunities, and related projects are expected to continue to be implemented.

2. The civil aviation management industry is picking up, and the demand for localization continues to rise

In 2023, the company's civil aviation traffic management achieved revenue of 0.551 billion yuan (+15.66% year over year) and a gross profit margin of 40.53% (+2.68pct). China is one of the countries with the largest aviation demand and industry in the world. The increase in the number of newly built airports, fleet size, and traffic flow in civil aviation has placed higher demands on the operating capacity of air traffic control systems, the technical level of civil aviation management, and management standards. Further development of regional aviation and activation of potential demand for air travel in second- and third-tier cities has become a trend, creating new market growth for traffic management in civil aviation. Overall information solution providers driven by localized core products in the industry will face more development opportunities.

In terms of air traffic control, the company is guided by market demand to enhance the competitiveness of core products, grasp the two main lines of localization, autonomy and control and next-generation system capabilities, implement key projects, and promote strategic cooperation. On the airport side, the company uses core products such as airport information integration systems (IIS) and berth guidance as a starting point. Small and medium-sized airports are developing “runway anti-intrusion” products to strengthen overall solution advantages, enhance core product capabilities, expand market share, and make every effort to promote the acceptance of major projects and help upgrade qualifications.

3. The construction of a low-altitude economy is expected to usher in unprecedented development opportunities

Based on the core technology of civilian command and control, the company focuses on future urban three-dimensional space construction. It is integrating business and technical advantages in the three fields of air traffic, ground traffic and urban governance to form a comprehensive traffic and low-altitude management solution and product array. The company will take national security, aviation safety, and public safety as the bottom line, support large-scale, high-density, and flexible low-altitude flight with the goal of building a unique low-altitude intelligent security system. Using a low-altitude operation management platform as a starting point, we develop key products with flight support and operation services as the core. Starting from all dimensions of airspace planning, route management, flight management, and manned and unmanned collaborative operation management, we will build open applications in various scenarios to accelerate the implementation of benchmark projects.

In recent years, relying on the superior business of air traffic control, the company has provided general aviation flight service systems for Anhui, Jiangsu and other regions; carried out cutting-edge research on key technologies such as low-altitude operation concepts and four-dimensional trajectory prediction for urban unmanned flight services, and developed a simulation and verification platform for low-altitude flight services; in the field of city-level low-altitude flight control and control, it is working with various forces to jointly promote low-altitude operation project planning, such as instant delivery, logistics and express delivery, in-city passenger transportation, etc., to verify the “one-stop” concept for urban smart air travel operation scenarios such as low-altitude activities and economic development. Intelligent integrated low altitude system provides Run the example reference. We have accumulated practical experience and trained professional and technical personnel in general aviation flight services, unmanned flights, etc., laying a solid foundation for the rapid development of the low-altitude economy industry in the future.

4. Traditional urban road traffic management and urban governance grew steadily in 2023, the company's urban road traffic management achieved revenue of 0.503 billion yuan (+31.11%), gross profit margin of 22.44% (-4.45pct); urban governance achieved revenue of 0.511 billion yuan (+2.16%), gross profit margin of 20.02% (-2.19pct). In 2023, the total size of China's urban intelligent transportation market was 69.58 billion yuan, up 3.7% year on year. In terms of urban road traffic management, smart transportation is currently becoming a new pioneer in Chinese-style modernization. Smart transportation plays an important role in innovating traffic formats, improving infrastructure levels, improving mass travel efficiency, maintaining traffic safety, achieving efficient and smooth traffic, environmental protection, energy saving and emission reduction. In terms of urban governance, government construction is shifting from “investing in infrastructure” in the digital economy to coordinating data as a “factor” to participate in market resource allocation. Data elements enable and increase efficiency in urban governance. Transforming, data elements enable and increase efficiency in urban governance.

The “Data Elements ×” Three-Year Action Plan (2024 2026) proposes to create more than 300 exemplary, highly visible, and motivating typical application scenarios, and 12 types of key actions, including transportation, emergency management, and smart cities. The two traditional fields covered by the company, urban road traffic management and urban governance, are expected to continue to grow steadily.

5. Profit prediction and investment rating: Leading domestic air traffic control enterprises, downstream application scenarios continue to expand, giving “increasing” rating companies to continue to stabilize their leading position in air traffic management. The two major sectors of traditional urban road traffic management and urban governance are developing well; accelerate the development of new airport tracks, accelerate research on new air traffic control technology and the development and verification of new airport products, and lead localization innovation. The “two wings go hand in hand” development pattern of air traffic control and airports is gradually improving.

Facing a national strategy for a low-altitude economy, relying on the advantages of air traffic control systems, there is broad room for future growth.

There is some fluctuation in the company's performance due to the fact that the company's main business uses the final test method to confirm revenue. Larger projects have a large impact on the revenue share of this business segment in the current period at the time of revenue confirmation. At the same time, the company's main business revenue is more seasonal, and it mainly focuses on revenue recognition in the fourth quarter. The company's main customers are concentrated in the traffic management industry, urban road traffic management industry and urban governance industry in civil aviation. The customers are local government units and state-owned enterprises, and the customer's industry is closely related to macroeconomics and government fixed asset investment. As China's low-altitude economy enters a new stage of rapid growth, the company's 2024-2026 performance is expected to maintain relatively rapid growth.

We are optimistic about the company's future prospects. The company's net profit from 2024 to 2026 is estimated to be 1.60, 1.92 million yuan, and 229 million yuan, respectively, with year-on-year increases of 21.12%, 19.89%, and 19.26%, respectively. Corresponding PE from 24 to 26 will be 57.10, 47.63, and 39.93 times, respectively, giving an increase rating.

Risk analysis

1. If the main business falls short of expectations, there is a risk that the profit assumption will not be established. Assuming the growth rate of the company's main business under various circumstances, the absolute value of operating income fluctuates at a rate of 10% per year. According to estimates, the estimated net profit situation of the company is as follows.

2. If the sales price of the company's products falls in the future due to factors such as increased market competition and major adverse changes in market demand, or production costs increase due to rising raw materials and labor costs, the company's gross margin space may be compressed, and the company will face the risk of a decline in gross margin. If the company's gross margin falls by 2 percentage points, 4 percentage points, and 6 percentage points in 2024-2026, the expected net profit to mother in 2026 will drop from 0.229 billion yuan to 0.175 billion yuan, 0.121 billion yuan, and 0.068 billion yuan, respectively.

3. Policy progress falls short of expectations: The traffic management industry, urban road traffic management industry, and urban governance industry in civil aviation are all technology-intensive industries. Industry iteration and increased customer requirements will place higher demands on the company's R&D and technology. If relevant policies fall short of expectations, it will significantly affect future market expansion and product upgrading, thereby affecting the release of performance.

4. Market competition intensifies: With the further advancement of civil-military integration, the industry threshold is gradually lowered, the company's traditional areas of advantage may be penetrated, and competition in emerging fields will become more intense, thus affecting the company's revenue and profitability.

5. Low-altitude economic development falls short of expectations: If China's low-altitude economic development construction process falls short of expectations in the future, it will significantly affect the company's traditional market expansion and application space in the field of air traffic control.