Key points of investment

Incident: The company released the 2024 semi-annual report, and net profit to mother decreased by 48.73% year on year 1) 2024H1 performance: 2024H1 achieved operating income of 1.363 billion yuan, a year-on-year decrease of 20.55%; due to mother 0.004 billion yuan, a year-on-year decrease of 48.73%; net profit without return to mother was 0.002 billion yuan, a decrease of 60.62% year over year. The weighted average return on net assets was 0.07%, a year-on-year decrease of 0.06pct. The year-on-year decline in 2024H1 performance was mainly due to the company successfully reversing some credit impairment losses and writing off some unpayable accounts payable in the same period last year by strengthening payment returns and debt clean-up efforts.

2) 2024Q2 performance: From a single-quarter perspective, 2024Q2 achieved operating income of 1.096 billion yuan, a year-on-year decrease of 30.59% and a month-on-month increase of 309.58%; net profit to mother was 0.013 billion yuan, a year-on-year decrease of 19.75%, and an increase of 238.19% month-on-month.

2024Q2 profit margin increased year on month, and cost control showed results 1) In terms of profit margin: 2024H1 gross margin was 3.66%, up 0.81 pct year on year; net margin was 0.26%, down 0.14 pct year on year. 2024Q2 gross margin was 3.66%, up 0.84 pct year on year and 0.01 pct month on month; net margin was 1.17%, up 0.16 pct year on year, up 4.64 pct month on month. The increase in profit margins was mainly due to the company vigorously carrying out cost control actions in the first half of the year to promote cost reduction and savings in the industrial chain and value chain.

2) In terms of period expenses: The cost rate during 2024H1 was 3.27%, an increase of 0.61 pct over the previous year. Among them, the sales expense ratio was 0.14%, a year-on-year decrease of 0.09pct; the management expense ratio was 1.21%, an increase of 0.16pct; the R&D expense ratio was 2.14%, an increase of 0.59pct; and the financial expense ratio was -0.22%, a decrease of 0.06pct year-on-year.

3) Balance side: 2024H1's notes and accounts receivable were $3.303 billion, a decrease of 24% from the beginning of the year. The contract debt was $4.67 billion, a decrease of 12% from the beginning of the year.

Significant progress has been made in the establishment and development of several key models. In the first half of 2024, the company made significant progress in the multi-line development of “military products, military trade, and civil aircraft”, and achieved significant progress and comprehensive development; the development results of the trainer series products were remarkable, the terminal market was further expanded, and the company's position as the main research and production base for domestic trainers was further consolidated.

Investment advice and profit forecasting

Due to the reduction in the number of products delivered by the company in the first half of 2024, we expect it to have an impact on the company's revenue and profit forecast. We expect the company's net profit to be 0.03, 0.084, 0.121 billion yuan in 2024-2026, up -9%, 184%, and 43% year-on-year, PE is 514, 181, 126 times, and PB is 2.9, 2.8, and 2.8 times. Considering the significant progress made in the company's key model establishment and development work, we are still optimistic about the company's future product lineage Develop and maintain a “buy” rating.

Risk warning: 1) delays in product delivery plans; 2) risks such as delays in supply chain delivery.