Core views

The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 28.821 billion yuan, an increase of about 1.44% over the same period of the previous year; realized net profit attributable to shareholders of listed companies was 0.944 billion yuan, an increase of 17.43% over the same period last year; and realized net profit of 0.886 billion yuan after deducting non-recurring profit and loss, an increase of 16.38% over the previous year. Overall, the company achieved intensive delivery of products during this reporting period, but most products have not yet reached the repayment point. While orders are being rapidly consumed, investment in raw material procurement and production preparation has also begun. The company expects the purchase amount of related transactions to increase by about 22% in 2024. The fourth quarter may usher in centralized repayment, and the company can be expected to grow steadily and rapidly throughout the year.

Ongoing orders are delivered quickly, and product structure updates are imminent

The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 28.821 billion yuan, an increase of about 1.44% over the same period of the previous year; realized net profit attributable to shareholders of listed companies was 0.944 billion yuan, an increase of 17.43% over the same period last year; and realized net profit of 0.886 billion yuan after deducting non-recurring profit and loss, an increase of 16.38% over the previous year. The company's revenue and net profit continued the trend of the first half of the year, maintaining steady and rapid growth. In terms of period expenses, the company's financial expenses for the first three quarters of 2024 increased 62.29% over the same period last year, mainly due to the year-on-year decrease in the company's current interest income; achieving R&D expenses of 73.4935 million yuan, a year-on-year decrease of about 34.39%, mainly due to the year-on-year decrease in R&D investment for self-funded projects during the reporting period. During the reporting period, the company's overall gross margin increased slightly by 0.22pct compared to the same period last year, reaching 7.36%, which is at a high level in the past three quarters.

During the reporting period, the company's monetary capital increased slightly by about 4.72% compared to the end of the previous reporting period, reaching 6.235 billion yuan. At the same time, the company's contract assets showed a sharp increase of about 70.74% over the end of the previous reporting period; accounts receivable fell slightly by 1.29% from the end of the previous period to 23.143 billion yuan, or side indicates that the company's products have always been in the intensive delivery stage, but most products have not yet reached the repayment time point. Accounts payable increased by about 10.93% compared to the end of the previous period, and prepaid accounts increased rapidly by about 18.82% compared to the end of the previous period. This is reflected in the increase in payment payments made by the company to suppliers, which is in the stage of preparing production and purchasing additional raw materials. During the reporting period, the company's contract liabilities maintained a downward trend, down about 17.04% from the end of the previous period, mainly due to the transfer revenue of some advance payments after delivery of some products. Overall, the company achieved intensive delivery of products during this reporting period, but most products have not yet reached the repayment point. While orders are being rapidly consumed, investment in raw material procurement and production preparation has also begun. The company expects the purchase amount of related transactions to increase by about 22% in 2024. The fourth quarter may usher in centralized repayment, and the company can be expected to grow steadily and rapidly throughout the year.

Air China and COMAC signed a purchase order for 100 C919 aircraft, with a total basic price of 10.8 billion US dollars. After purchasing 6 C919s for the first time in December 2023, the number of Air China C919 orders officially broke 100. At this point, China Eastern Airlines, China Southern Airlines, and Air China have all broken 100 C919 purchases, and the overall domestic order volume for the C919 has increased rapidly. In addition to the increase in the number of orders, there has also been a certain increase in the price of stand-alone aircraft. The total price of China Eastern Airlines orders for 100 aircraft is about 9.9 billion US dollars. The increase in the unit price of the China Airlines order C919 is mainly due to the shift from basic to extended range models, and the average price rose to 0.108 billion US dollars. In terms of pace, the first Air China C919 has recently completed its first flight, and China's civil aviation passenger aircraft industry is about to enter a new stage. As the C919 rollout volume continues to rise, the company will directly benefit as the C919 undertaker, and civilian products are expected to provide strong profit contributions in the future.

Leading military aircraft, steady development of civilian products business

The strategic position of military products is stable, and the competitive strength of civilian products is strong. The company is mainly engaged in R&D, production and sales of aviation products such as large and medium-sized military aircraft and aviation parts. Currently, it has formed four major pillar businesses for military aircraft, civil aircraft, aviation parts, and international subcontracting. The company is a major manufacturer of large and medium-sized military transport aircraft, bombers, special combat aircraft and the Xinzhou series of civil aircraft in China, and is one of the important domestic transport aircraft manufacturers. The company is also the main sub-contractor for the domestic regional aircraft ARJ21, and also supplies airframe structural parts and landing gear for large domestic aircraft such as the C919 and AG600. In addition, the company has established stable subcontract production partnerships with more than 10 world-famous aviation manufacturers, including American Boeing, European Airbus, and Jianan Bombardier, to provide foundry services for aircraft parts such as tail, wing boxes, boarding doors, and maintenance doors for these international aviation manufacturers.

Leading large military aircraft, the military market is broad. The company's future development goal in terms of military products is to build a military aircraft industry with product genealogy development. After completing the integration of large aircraft manufacturing resources from manufacturers such as Xifei, Shaanxi Fei, and Chengfei, the company has now become the only complete manufacturing platform for military transport aircraft and bombers in China. The current products cover China's key strategic and tactical models such as the large transport aircraft Transport 20, the Medium Transport Carrier Transport 8, and the Transport 9 series, as well as special operations modifications, medium- and long-range bomber bomber bomber 6 series, and the J-7 series. They are in a leading position in the domestic military large and medium transport aircraft and bombers industry. At present, the company's mature models have begun to move on the path of genealogy development, and new models such as the Yun20 will also be used as platform machines to generate various modifications such as early warning and refueling after batch installation.

Mainstream manufacturers of civilian aircraft parts have obvious advantages in entering civilian complete aircraft. The company's future development goal in terms of civilian products is to build a competitive civil aircraft industry. Currently, with the support of the aviation subcontracting industry, the company has the ability to manufacture airframe structural parts supported by research and development, has obvious advantages in manufacturing large-size parts, and has the ability to rank among world-class first-class suppliers and venture partners for airframe structural components. The company will strengthen the core monopoly position of landing gear and wheel brake system development in the domestic industry and become a world-class landing gear system supplier integrating design, manufacturing, testing and service. The company will strive to become a mainstream manufacturer of turboprop regional aircraft. While consolidating its advantages in the parts business, the company will catch up with the shortcomings in civil machine manufacturing and further enhance the company's market competitiveness.

Profit forecast and investment rating: A steady increase in annual performance can be expected. Maintaining the purchasing rating company as the sole manufacturer of major military aircraft such as the 20, and the main parts supplier for civil aircraft such as the C919, AG600, and ARJ-21 will directly benefit from the acceleration of strategic air force construction and the rapid localization of civilian aircraft. We are strongly optimistic about the company's future development prospects. We expect the company's net profit from 2024 to 2026 to be 1.134 billion yuan, 1.459 billion yuan, and 1.802 billion yuan respectively, with year-on-year increases of 31.68%, 28.66%, and 23.52%, respectively. The corresponding EPS for 24 to 26 will be 0.41, 0.52, and 0.65 yuan, respectively. Corresponding to the current stock price PE is 69, 54, and 44 times, respectively, maintaining the purchase rating.

Risk analysis

The company's main business product is the Y-20 transport aircraft. Based on the prototype model, the oil-transport-20 tanker model has appeared. The modified products are already at a mature stage, and the overall demand is high, but the exact quantity and pace of subsequent loading are still difficult to determine. Since Yun-20 products account for a large share of the company's overall revenue, changes in the demand order volume for this model and its modification will clearly affect the company's overall revenue and net profit rhythm.

Looking at the company's overall product lineage, the company already has mature bombers, large platforms, and small to medium platform products. The subsequent development and derivation process of new products is unclear, and there is some uncertainty about the overall iteration of the product.

China's relevant policies in the field of civil aviation continue to advance, the maturity of civil aviation models and the rate of localization are constantly increasing, and the contribution of the relevant civil products business to the company's performance and the timeline are uncertain.