The company released its mid-2023 report: revenue reached 1.784 billion yuan, up 64.16% over the same period last year; net profit reached 258 million yuan, up 129.03% over the same period last year; and net profit after deducting non-return was 230 million yuan, up 131.20% over the same period last year. Basic earnings per share was 0.58 yuan per share, an increase of 128.10% over the same period last year, and the weighted average return on equity was 6.02%, an increase of 2.85pct over the same period last year.

Explosive growth in revenue and performance: in the first half of 2023, Wuxi Huashan (56.25%), the company's holding subsidiary, achieved 239 million yuan in revenue and 47 million yuan in net profit; 2022H1 and 2023H1, the company confirmed share payment fees of 57 million yuan and 103 million yuan, respectively. Excluding the impact of China Test's merger, the company's 2022H1 and 2023H1 achieved revenue of 940 million yuan and 1.545 billion yuan (up 64.29% over the same period last year), while 2022H1 and 2023H1 achieved a net profit of 101 million yuan and 232 million yuan (up 130.41% over the same period last year). Excluding the influence of share payment fees, the net profit of 2022H1 and 2023H1 is 169 million yuan and 361 million yuan respectively (up 114.26% over the same period last year). Excluding the influence of share payment fees and China Test combined table, the net profit of 2022H1 and 2023H1 is 157 million yuan and 335 million yuan respectively (an increase of 113.12% over the same period last year).

Domestic infrared business doubled growth: according to domestic and foreign markets, in the first half of 2023, the company's domestic market achieved operating income of 1.103 billion yuan, an increase of 100.99% over the same period last year; accounted for 61.85% of total revenue, an increase of 11.33pct over the same period last year; gross profit margin was 47.65%, an increase of 2.34pct over the same period last year. Overseas operating income reached 647 million yuan, an increase of 21.88% over the same period last year; 36.26% of total revenue, down 12.58 pct from the same period last year; and gross profit margin of 53.71%, an increase of 4.44pct over the same period last year. By product, the operating income of infrared thermal imaging business reached 1.478 billion yuan, an increase of 61.18% over the same period last year; it accounted for 82.86% of total revenue, down 1.53 pct from the same period last year; and the gross profit margin was 52.79%, an increase of 3.03pct over the same period last year. The domestic income of the infrared thermal imaging business was 831 million yuan, up 115.16% from the same period last year, and the gross profit margin was 52.07%, up 1.65% from the same period last year. Microwave RF realized operating income of 244 million yuan, an increase of 65.12% over the same period last year; accounted for 13.66% of total revenue, an increase of 0.08pct over the same period last year; and gross profit margin was 34.63%, an increase of 1.35pct over the same period last year.

The salary of R & D personnel and their per capita salary increased year-on-year: in the first half of 2023, the company's gross profit margin was 49.79%, an increase of 2.60pct over the same period last year; and the net profit rate was 13.47%, an increase of 3.24pct over the same period last year. 2023Q2, the company's gross profit margin is 52.39%, year-on-year increase of 5.28pct, month-on-month increase of 5.87pct, net profit of 16.61%, year-on-year increase of 1.54pct, increase of 7.08pct. In the first half of 2023, the total cost of the company during the period was 581 million yuan, an increase of 49.31% over the same period last year, and the proportion of expenses in revenue during the period was 32.58%, a decrease of 3.24 pct over the same period last year. Among them, R & D expenditure was 304 million yuan, an increase of 29.65% over the same period last year, accounting for 17.05% of operating income and a decrease of 4.54pct over the same period last year. In the first half of 2023, the company had 1141 R & D personnel, an increase of 17.87% over the same period last year; R & D personnel accounted for 44.80% of the total number of people in the company, an increase of 2.38 pct over the same period last year; the salary of R & D personnel totaled 151 million yuan, an increase of 27.74% over the same period last year; and the average salary of R & D personnel was 135800 yuan, an increase of 10.95% over the same period last year.

Wuxi Huashan net interest rate increased significantly: in the first half of 2023, Wuxi Huashan, a subsidiary of the company, realized revenue of 239 million yuan, an increase of 63.29% over the same period last year, and a net profit of 46.913 million yuan, an increase of 129.86% over the same period last year. The net interest rate was 19.59%, an increase of 5.67pct over the same period last year. Arui Optoelectronics, a subsidiary, made a net profit of 204 million yuan, an increase of 267.66% over the same period last year.

Foreign investment to set up a holding subsidiary: the company and Yantai Longitudinal Core jointly contributed 10 million yuan to set up Ruiswei, of which the company contributed 6 million yuan (60%) with its own capital and 4 million yuan (40%). This will help to promote the development of the company in the field of microwave semiconductors and radio frequency electronic systems and improve the business layout in the field of multi-dimensional perception.

We adjust our profit forecast according to the latest earnings report, and we expect the company's 2023-2025 net profit to be 6.06 shock 8.33 / 1.067 billion yuan, EPS 1.36 shock 2.39 yuan / share, corresponding to the August 8 closing price PE is 35.8 shock 26.1 shock 20.4 times, maintaining the "overweight" rating.

Risk hint: special orders are not as expected and overseas business expansion is not as expected.