Key points of investment

Incident: The company released its 2024 semi-annual report, with net profit excluding non-return to mother up 176% 1) 2024H1 performance: 2024H1 achieved operating income of 8.174 billion yuan, a year-on-year decrease of 31.69%; net profit to mother of 0.298 billion yuan, a year-on-year decrease of 9.18%; net profit after deducting non-return to mother of 0.271 billion yuan, an increase of 176.17% year on year. The weighted average return on net assets is 2.45%. The 2024H1 performance was basically in line with market expectations. The year-on-year decline in performance was mainly due to the year-on-year decline in product delivery volume.

Core view: We believe that the year-on-year decline in performance may be related to the pace of machine product delivery. The second half of the year is the main delivery point for complete machine products. In line with the 2024 financial budget guidelines given by the company (which is expected to achieve revenue of 30.813 billion yuan and net profit of 0.716 billion yuan in 2024), we are optimistic about the year-on-year increase in the company's performance in the second half of 2024 and the recovery of Harbin's performance.

2) 2024Q2 performance: From a single-quarter perspective, 2024Q2 achieved operating income of 4.801 billion yuan, a year-on-year decrease of 44.71% and a month-on-month increase of 42.37%; net profit to mother of 0.167 billion yuan, a year-on-year decrease of 51.22% and an increase of 28.51% month-on-month; net profit after deducting non-return to mother of 0.153 billion yuan, an increase of 69.63% year-on-year and 28.94% month-on-month.

The net interest rate of the 2024H1 Harbin division was 6.26%, and the performance of the Jingdezhen division gradually recovered. Looking at the company segment, the revenue of the 2024H1 Harbin division was 4.789 billion yuan (7.663 billion yuan in the same period last year), the total profit was 0.352 billion yuan (0.261 billion yuan in the same period last year), and the net interest rate was 6.26% (3.07% in the same period last year); the revenue of the Jingdezhen division was 3.799 billion yuan (2.744 billion yuan in the same period last year), profit Total 0.072 billion yuan (0.001 billion yuan in the same period last year), net profit margin was 2.11% (0.24% in the same period last year)

2024Q2 increased both gross margin and net profit margin; contract debt increased significantly compared to the end of 2023.1) In terms of profit margin: 2024H1 gross margin was 13.10%, up 5.63 pcts year on year; net interest rate was 3.58%, up 2.47 pct year on year. 2024Q2 gross margin was 14.15%, up 6.5 pct year on year and 2.55 pct month on month; net margin was 3.42%, up 1.94 pct year on year, down 0.39 pct month on month.

2) In terms of period expenses: The cost rate during 2024H1 was 8.86%, an increase of 3.21pct over the previous year. Among them, the sales expense ratio was 1.16%, up 0.47 pct year on year; the management expense ratio was 5.55%, up 2.41 pct year on year; the R&D cost ratio was 2.17%, up 0.17 pct year on year; and the financial cost ratio was -0.02%, up 0.16 pct year on year.

3) Balance side: 2024H1's notes and accounts receivable were $7.169 billion, an increase of 24% over the end of 2023. 2024H1's contract debt was $7.979 billion, up 458% from the end of 2023.

A breakthrough has been achieved in the civilian product business. The trial production certification of C919 composite materials passed the PPV review 1) Civilian helicopters: signed a purchase and sale contract for 1 AC311A helicopter with the First Affiliated Hospital of Nanchang University; completed the signing of a procurement contract for 10 AC311A helicopters and an industrial cooperation framework agreement with Shanxi Aviation Group.

2) Large domestic aircraft: The company undertook the work share of the C919 tail, wing fairing, front lift door, and main lift hatch. The trial production certification of C919 composite products passed the PPV audit.

Investment advice and profit forecasting

The company's net profit for 2024-2026 is estimated to be 0.72, 0.9, and 1.08 billion, up 63%, 24%, and 20% year-on-year, and PE is 42, 34, and 28 times. Considering that the company is a specialized leading listed company in China's helicopter industry, it will also benefit from the low-altitude economy and major development of large domestic aircraft and maintain a “buy” rating.

Risk warning: Risks such as downstream demand falling short of expectations, civil helicopter forensics progress falling short of expectations