Investment Rating - The investment rating for the company is maintained as "Buy" with a target price of 37.87 RMB [7][8]. Core Views - The company is expected to face short-term pressure on performance due to delayed domestic military product demand and low assembly maturity of new engine models, leading to a decline in gross margin. However, the long-term strategic position and growth potential of the company as the only listed platform for military aviation engines in China are viewed positively [1][4][12]. Summary by Sections Financial Performance - In 2024, the company achieved revenue of 478.80 billion RMB, a year-on-year increase of 9.48%, but the net profit attributable to shareholders was 860 million RMB, a decrease of 39.48% year-on-year. The fourth quarter of 2024 saw revenue of 219.23 billion RMB, up 25.81% year-on-year, but net profit dropped 65.65% year-on-year to 134 million RMB [1][12]. - The revenue from aviation engines and related products was 449.94 billion RMB, a 10.03% increase year-on-year, while the gross margin was 9.54%, down 0.48 percentage points due to the need for improved maturity of new products [2]. Product Segmentation - The revenue from the main engine manufacturers showed varied performance: - Li Ming: Revenue of 273.69 billion RMB, up 4.32%, but profit decreased by 31.87% - Southern: Revenue of 76.73 billion RMB, down 1.30%, with a significant profit drop of 96.50% - Li Yang: Revenue of 50.93 billion RMB, up 3.77%, turning a loss into a profit - Western Aviation: Revenue of 160.33 billion RMB, up 23.58%, with a slight profit decrease of 6.04% [3]. Earnings Forecast and Valuation - The revenue forecast for 2025-2027 is adjusted to 504.71 billion RMB, 580.67 billion RMB, and 668.23 billion RMB respectively, reflecting a downward adjustment of approximately 12.43% and 12.26% for 2025 and 2026 [4][13]. - The company is expected to maintain a price-to-sales (PS) ratio of 2.0 for 2025, with a target price of 37.87 RMB based on a 65X price-to-earnings (PE) ratio for 2024 [4][8].

Core Viewpoint - The recent progress in the development of the CJ-1000 engine, a domestically produced turbofan engine for the C919 aircraft, indicates a significant step towards reducing reliance on Western technology and suppliers in China's aviation industry [1][3]. Group 1: Engine Development Progress - The CJ-1000 engine is currently in trial operation, with performance exceeding optimistic expectations, showcasing the resilience of China's supply chain [1]. - The CJ-1000 is China's first self-developed engine of its kind, aimed at providing more options and achieving independent innovation in aviation technology [1][3]. - The engine is expected to undergo verification flights for the C919 shortly after testing on the Y-20 military transport aircraft [1]. Group 2: Geopolitical Context and Challenges - China is striving to develop a reliable and commercially viable civil aviation engine to reduce dependence on Western suppliers amid increasing geopolitical tensions and potential export restrictions [3]. - The U.S. has previously considered limiting the sale of LEAP engines to China, and recent actions have placed certain Chinese aviation companies on a restricted list, complicating access to U.S. technology [3]. Group 3: Technological and Talent Development - The company is leveraging artificial intelligence to accelerate engine development but faces challenges due to the inadequacy of current AI algorithms for complex engine projects [4]. - There is a pressing need for a computing capability support system utilizing cloud and edge computing to enhance engine design and testing processes [4]. - The aviation sector in China is experiencing a talent shortage in aerospace engineering and artificial intelligence, necessitating better collaboration between educational institutions and enterprises [4]. Group 4: Significance of CJ-1000 Development - The CJ-1000 engine is positioned at the performance level of fifth-generation engines, with significant technical challenges due to the lack of prior experience in developing large civil engines in China [5]. - The successful development of the CJ-1000 is crucial for advancing China's capabilities in manufacturing advanced civil aviation engines, a field currently dominated by the U.S., U.K., France, and Russia [4][5]. Group 5: Maintenance and Operational Milestones - The C919 aircraft successfully completed its first engine replacement, a complex maintenance task that enhances safety and fills a gap in domestic civil aviation maintenance capabilities [6].