A few days ago, Tianhe Defense (300397. SZ) announced its first quarter 2024 report. During the reporting period, the company achieved revenue of about 135 million yuan, a year-on-year increase of 66.95%, and the net profit attributable to the parent company was 6.998 million yuan, a year-on-year turnaround.
In the face of great changes unseen in a century and the implementation of military strategic principles in the new era, the military needs to comprehensively improve its ability to win wars, which puts forward higher requirements for the development of the military industry. At the same time, the wide application of a new generation of information technology such as 5G, Internet of Things, and big data, as well as the rapid advancement and development of the mainland's low-altitude economy, have created good development opportunities for Tianhe Defense in the business system of "communication electronics" and "new generation of integrated electronic information (Tianrong Engineering)".
Tianhe Defense grasps the pulse of the times, actively responds to the call of the country, and cultivates new quality productivity around the three major business systems based on the market demand for low-altitude air supremacy capacity building and low-altitude ultra-low-altitude defense system construction. In the first quarter of 2024, the company's military trade, marine series products and other military products have been delivered and accepted, operating income has increased significantly, and net profit has turned losses into profits year-on-year.
Benefiting from the needs of national defense construction, the military equipment business has made a breakthrough
Deeply cultivated in the industry for many years, Tianhe Defense has continuously strengthened independent innovation, strengthened core technology research, realized the independent and controllable key links, based on low-altitude air supremacy capacity building, and focused on low-altitude air defense operations serving modern warfare and digital China innovation system capacity building.
At present, Tianhe Defense has built three major business systems of "military equipment", "communication electronics" and "new generation of integrated electronic information (Tianrong Engineering)" driven by the market demand of low-altitude and ultra-low-altitude defense systems, forming a series of products and solutions applied to different fields of military and civilian use, and forming certain technical advantages and industry status in military industry, 5G radio frequency and other industry segments.
The military industry is a highly specialized, technology-intensive, and strictly regulated industry with a special status and importance. The military industry directly serves the construction of national defense and the modernization of the armed forces, and is an important force in ensuring national security.
Benefiting from the implementation of strategic goals such as "accelerating the upgrading of weapons and equipment and the development of intelligent weapons and equipment" in the "14th Five-Year Plan", it is expected that the overall market size of the military electronics industry will maintain rapid growth. The China Business Industry Research Institute predicts that by 2025, the market size of the army's industrial electronics industry will exceed 500 billion yuan, with an average annual compound growth rate of more than 9% from 2021 to 2025. In addition, the national defense expenditure budget for 2024 will be 1,665.54 billion yuan, a year-on-year increase of 7.2%, and the growth rate of the national defense budget will exceed expectations.
National defense construction is a rigid need of a major country, and the goal of building a century-old army has led to a sustained and strong demand for weapons and equipment procurement, and the steady growth of military expenditure has provided a stable foundation for the military industry. In the future, with the in-depth advancement of the mainland's national defense construction and military modernization, the military industry is expected to usher in a broader space for development.
Tianhe Defense's military equipment business is mainly based on the subsidiary Tianwei Electronics as a platform, business planning has been closely following the market demand and domestic and foreign technology development trends, and in the major national strategic needs, national security key areas of the layout, the core product "portable air defense missile intelligence command system" has been installed in the troops, the products have been widely recognized in the field of subdivisions, for the company in the field of low-altitude close defense has laid a good market foundation.
Tianhe Defense announced in November 2023 that Tianwei Electronics, a wholly-owned subsidiary, recently signed a "purchase contract" with a domestic military department, with a total contract amount of 90 million yuan. In order to meet the needs of low-altitude air defense operations in the future, the requirements of anti-UAV, localization rate, mobility and protection have been added, and reasonable adjustments have been made to the target price of contract products, and the contract performance amount is expected to be about 132 million yuan.
In fact, the contract signed by the two parties is the second batch of order contracts after the first batch of contracts for the project of "upgrading and transformation of a certain type of portable air defense missile intelligence command system", which marks the high recognition of the company's products by customers, and is expected to bring continuous orders in the future. This upgrading project is the key layout of Tianhe Defense in the field of low-altitude and short-range air defense, and further consolidates the company's industry position in the field of low-altitude and short-range air defense. At the same time, it promotes the sustainable development of the company's low-altitude short-range air defense, urban and important air defense, and anti-drone business, and will also have a positive impact on the company's future operating performance.
On the basis of deep cultivation of traditional business, Tianhe Defense continues to increase the expansion of foreign markets, focusing on low-altitude close defense (anti-cruise missiles, anti-drones and swarms, etc.), border and coastal defense, digital military camps, 5G military applications and military industry supporting five business directions continue to develop, the implementation of relevant contracts has been steadily promoted, and breakthroughs have been made in a number of new business directions. At present, Tianhe Defense has built an advanced technological innovation chain and a relatively sound industrial chain, which effectively supports the rapid development of the company's military equipment business and ensures that the company maintains a leading position in the industry.
Forward-looking layout of "low-altitude economy" to cultivate first-mover advantage
Recently, the concept of "low-altitude economy" has continued to be hot. At this year's National People's Congress and the National People's Congress, the low-altitude economy was written into the "Government Work Report" for the first time. Subsequently, relevant policies to promote the development of low-altitude economy have been introduced throughout the country.
At the end of March 2024, the Ministry of Industry and Information Technology and other four departments jointly issued the "Implementation Plan for the Innovative Application of General Aviation Equipment (2024-2030)", which proposed to accelerate the iterative upgrading of general aviation technology and equipment and build a modern general aviation advanced manufacturing cluster. By 2030, general aviation equipment will be fully integrated into all fields of people's lives, becoming a powerful driving force for low-altitude economic growth and forming a trillion-level market scale.
It is worth noting that Tianhe Defense has laid out low-altitude economy-related businesses very early, and has accumulated rich experience, profound technical advantages and scientific research strength in this field.
In 2001, Tianhe Defense undertook the task of developing air defense models for cities and important places of a certain department of the Military Commission. In 2010, the company expanded its layout from military technology to civilian and entered the field of low-altitude air traffic control support business. Under the leadership of the Civil Aviation Administration of China, it participated in the "General Aviation Integrated Operation Support System" project of the major project of the National Science and Technology Support Program "Comprehensive Application Demonstration of China's Civil Aviation Collaborative Air Traffic Control Technology".
In 2015, Tianhe Defense initially formed a series of general aviation products such as low-altitude surveillance radar, scene surveillance radar, photoelectric surveillance system, basic flight service station, emergency flight service station, and enhanced flight service station, and some products have obtained intentional agreements in the field of general aviation and civil aviation, laying a good foundation for the company to enter the civil aviation and general aviation market.
Nowadays, Tianhe Defense has software and hardware products to meet the needs of low-altitude flight service support, and based on the needs of aviation emergency rescue, it focuses on the application of new technologies such as cloud platform, big data, and 5G, and has formed a dual-use, air-ground coordination, and practical aviation emergency rescue platform composed of Beidou/ADS-B/4G airborne terminals, aviation emergency mobile towers, and aviation emergency service platforms, which solves the problem of aviation emergency charges and effectively improves the air-ground integration capability of emergency rescue.
Low-altitude infrastructure is the basis for the development of low-altitude economy, and the air traffic control system is the strategic infrastructure for the country to implement airspace management, ensure flight safety, and realize the efficient operation of air transport, and is also an important part of the territorial air defense system. The low-altitude air traffic control support business laid out by Tianhe Defense is aimed at the midstream market of low-altitude economy and is the only way for low-altitude economic development. With the support of the national policy of promoting low-altitude economy, the low-altitude air traffic control support business of Tianhe Defense is expected to usher in major development opportunities.
Under the dual thrust of policy and market, the development of low-altitude economy ushered in the outlet, such as Tianhe Defense, which has core technology and actively cultivates first-mover advantages of high-tech enterprises are expected to take off.
In the first quarter, the company turned losses into profits, and the expectation of performance improvement was strengthened
In the first quarter of 2024, thanks to the delivery and acceptance of military products such as military trade and marine series products, the operating income has increased significantly, and the net profit has turned into a profit year-on-year, and the company's operating performance may have an "inflection point".
At present, Tianhe Defense is in the investment period of scientific research strategy, capacity building, the promotion of core technology research and the promotion period of scale and industrialization, the company closely focuses on the military equipment, 5G radio frequency, a new generation of integrated electronic information (Tianrong project) three major business directions continue to deepen innovation, key core technology research has made new breakthroughs, the formation of core competitiveness market-oriented new products.
In recent years, Tianhe Defense has actively responded to challenges and seized development opportunities, and the company has united as one, overcome difficulties, and made every effort to ensure the steady and orderly progress of various businesses. The company's military business continues to expand into new areas and improve service quality, laying a solid foundation for the company's long-term development; 5G RF products continue to be optimized and upgraded to strengthen its leading edge in key fields; Tianrong Engineering business line has deepened its core business and development layout, and its business demonstration has achieved remarkable results.
After hard work, Tianhe Defense's business performance has finally improved significantly. According to the disclosure, Tianhe Defense achieved revenue of about 135 million yuan in the first quarter of 2024, a year-on-year increase of 66.95%, and the net profit attributable to the parent company was 6.998 million yuan, a year-on-year turnaround. The company's operating performance is expected to usher in an "inflection point".
Driven by multiple factors such as the continuous advancement of the "14th Five-Year Plan", the expected growth of military spending, the innovative application of 5G, and the acceleration of the development of the digital economy and low-altitude economy, Tianhe Defense continues to strengthen the research and development of core technologies, promote the industrialization process, promote the development of new products and market development, and continuously improve its core competitiveness and profitability.