The results in the second quarter continued the trend of high growth, and profitability is expected to continue to rise. The company issued a half-year performance forecast for 2023, and 2023H1 estimated that the homed net profit was 1.6-170 million, an increase of 61.6%-71.7% over the same period last year, and that of deducting non-homed net profit was 1.55-165 million, up 63.2%-73.7% over the same period last year. After conversion, 2023Q2 is expected to achieve a net profit of 1.0% to 110 million, an increase of 37.1% to 50.9% over the same period last year, and a non-return net profit of 0.97% to 107 million, an increase of 50.8% over the same period last year. The company's profitability is affected by the triple resonance of raw material cost optimization, product structure upgrading and exchange rate, and Q2 profit margins are expected to continue to improve.

The traditional three major businesses continue the growth trend of Q1, and the new business achieves high growth under the low base. 1) Civil pump:

The company has been ploughing deeply in the field of agricultural pumps for many years, and its products and brands have significant advantages. It is expected that Q2 agricultural pumps will achieve accelerated growth due to the recovery of domestic epidemic and the impact of overseas drought. At the same time, the company is actively developing the 10 billion-class commercial pump market, which is expected to form a new source of growth power in the future. 2) Household shielded pumps: domestic demand for wall-mounted furnaces has rebounded. According to Ovi data, the retail sales / sales volume of 2023M1-4 domestic wall-mounted furnaces has increased by 20.9% and 37.1% respectively, and the market has obviously recovered; the demand growth rate of overseas energy-saving pumps and heat pump shielding pumps has slowed slightly, and overall Q2 household shielded pump revenue is expected to continue to grow in double digits. 3) Industrial pump: the technical and customer barriers are higher and foreign capital is dominant at present, and there is a broad space for domestic substitution. The company's orders are in good condition, and Q2 is expected to achieve double-digit growth. With the continuous expansion of new markets and customers, it is expected to further accumulate market share in the future. 4) liquid-cooled pumps: the company has obvious advantages in the field of fuel cell liquid-cooled pumps for hydrogen energy vehicles, and Q2 liquid-cooled pumps are expected to maintain high-speed growth at a low base; in addition, there are already order reserves for liquid-cooled pumps in energy storage and data room, which is expected to generate revenue in the second half of the year. The company's traditional business is growing steadily, new categories and new market development are in the ascendant, products are widely recognized by customers to promote the continuous upgrading and optimization of the sales structure, and the growth momentum is sufficient as a sub-leader of shielded pumps in the medium and long term.

Q2 net interest rate is expected to continue to rise. Assuming that 2023Q2 continues the 40 per cent growth in 2023Q1 revenue, it is estimated that the net interest rate of 2023Q2 will reach 17.9 per cent, an increase in 0.5pct compared with the same period last year. The increase in the company's 2023Q2 profit is expected to be mainly due to the optimization of raw material costs, the structural improvement of energy-efficient pump products and the stabilization of gross profit margin brought about by the devaluation of the RMB, while the exchange gain is expected to be narrower than that of 2022Q2. Overall, gross profit margin is expected to increase steadily, profitability continues to a good trend.

Risk tips: overseas demand growth is not as expected; industry competition is intensified; new customer expansion is not as expected.

Investment advice: raise your earnings forecast and maintain your "buy" rating.

The company is the leader of domestic shielded pumps, traditional civil pumps make steady progress, household shielded pumps benefit from the upgrading of heat pumps and energy-saving pumps, and the new application fields downstream are developed rapidly. In view of the rapid improvement in the company's profitability in the first half of the year and the high downstream demand, the company raised its profit forecast. It is estimated that the homed net profit in 2023-2025 will be 3.5 million, 43.0 million, or 480 million, with a growth rate of 35%, 21, and 18%; PE=13/11/9x, maintaining the "Buy" rating.