The company released its 2023 semi-annual report, excluding EPC, the main business performance is beautiful. In the first half of 2023, the company realized revenue of 400 million yuan, year-on-year change-1.01pct, net profit of 53 million yuan, year-on-year change-58.93pct, of which the income of mining rubber wear-resistant spare parts was 252 million yuan, an increase of 23.20% over the same period last year. The company's profits declined in the first half of 2023, on the one hand, the overall relocation and disposal income was generated in the same period last year, which had an impact of 70 million yuan on the net profit of the same period last year; on the other hand, the company implemented the employee stock ownership plan in September 2022, resulting in the payment of 11.88 million yuan in additional shares in the first half of 2023 compared with the same period last year. The company's half-year net profit after deducting non-recurring profits and losses decreased by 8.88% compared with the same period last year, mainly due to the company's mineral processing system scheme and service income of 148 million yuan (mainly referring to EPC type business) in the same period last year, which affected the net profit of about 29.98 million yuan in the same period. The income of EPC type business in the first half of 2023 was 14.3682 million yuan. Excluding EPC type business income, the main business income increased by about 50% compared with the same period last year, and the net profit after deducting non-business increased by 113.96% compared with the same period last year. In addition, the company is full of orders on hand. In 2023, the contract signing volume of H1 reached 713 million yuan, an increase of 120.74 percent over the same period last year, of which the number of contracts signed for the main manufacturing business reached 509 million yuan, an increase of 57.89 percent over the same period last year. Sufficient orders will strongly support the rapid growth of the company's future revenue and profits.

The profitability is stable, and the share payment affects the management expense rate of the company. The company's 2023 H1 sales gross profit margin of 32.39%, year-on-year changes in 1.07pct, sales net profit rate of 13.63%, a significant decline compared with the same period last year, mainly due to the payment of 11.88 million yuan in new shares in the first half of 2023 compared with the same period last year. In terms of expense rate, the sales expense rate, management rate and R & D rate of H1 company in 2023 were 6.23%, 14.50% and 3.54%, respectively, with changes in 2.26pct, 6.66pct and 1.21pct compared with the same period last year. The increase in sales expense rate is mainly due to the increase in business expenses and travel expenses, while the rapid increase in management expenses is mainly due to the increase in share payment expenses, employee compensation and depreciation of fixed assets. On the whole, after excluding the impact of share payment and depreciation of fixed assets, the company's expense rate can be controlled as a whole.

Belt and Road Initiative long-term benefit, the company continues to enjoy category expansion + industry penetration enhancement dividend. Under the background of Belt and Road Initiative, the trend of mines going to sea is clear. at present, domestic mining enterprises are accelerating overseas layout. at the same time, from the perspective of resources, copper, iron, lithium and other mineral resources are mostly overseas, which is the main market for equipment and spare parts. The company has a wide range of products, and the profit margin of overseas products is higher than that of domestic products. In the future, as the company continues to make efforts in overseas markets, the company's profitability will be enhanced with strong certainty. In addition, the company continues to expand the wear-resistant spare parts market, EPC business income will also bring sufficient performance flexibility for the company. In the future, with the acceleration of rubber wear-resistant spare parts to promote the industry trend of metal spare parts replacement, the company's performance is expected to continue to increase.

Investment suggestion: taking into account the company's current sufficient orders-on-hand, we slightly improve the company's performance. It is estimated that in 2023-2025, the company will achieve a revenue of 11.1x151x1.90 billion and a net profit of 1.08x172max, corresponding to a PE of 28.6x18.0max 12.1x, maintaining a "buy" rating.

Risk tip: the penetration of rubber wear-resistant spare parts is not as expected, and the development of overseas customers is not as expected.