The company's performance in the first half of the year increased year-on-year, revenue from the cryogenic equipment business increased, and gross margin improved to normal levels. At the same time, the company's overall business has sufficient orders, the newly entered gas operation business has progressed, and clean energy investment continues to advance and many patents have been obtained. We believe that the development of the company's cryogenic business continues to improve, that the gas operation business and clean energy investment can be expected in the future, and maintain the “increase in holdings” rating.
Operating income increased year over year, and net profit to parent increased. In the first half of 2023, the company achieved operating income of 114 million yuan, +46.33% year on year; net profit of 0.7 billion yuan, +237.31% year on year; net profit after deducting non-return net profit of -05 billion yuan, -362.71% year on year. The reason for the increase in revenue was the year-on-year increase in the execution of stock orders and the number of new orders signed in the first half of the year. Risk mitigation for the company's inventory projects has been effective, and the successful recovery of funds has contributed to the increase in net profit.
The cryogenic equipment business is improving, but the business model affects reported profits. In the first half of 2023, the operating income of the company's LNG units/air separation units was 0.62/31 billion yuan, respectively, +286.95%/+256.37%. The gross margin returned to normal levels, at 24.14%/16.48%, respectively, and +21.99/11.31 pcts. The company's gross profit for the first half of the year was about 24 million yuan, which was not enough to cover three fees and other expenses. Deducting non-net profit was negative. We think the reason is that the company's order execution cycle is long, and revenue has not yet been confirmed. It is expected that after order revenue is confirmed, the reported profit will improve.
The main business has sufficient potential, and the gas operation business has progressed. The company signed new orders in the first half of 2023 with a contract amount of about 600 million yuan. According to the company's response to the exchange's 2022 report inquiry letter, the company signed nearly 900 million new business orders in 2022. The company achieved revenue of 239 million yuan and 114 million yuan in 2022 and 2023H1, respectively. Based on the characteristics of the company's business model, we believe the company currently has orders of about 1 billion yuan and is expected to be released within the next 1-2 years. In terms of gas operation business, all mechanical parts of the company's Inner Mongolia Yahai BOG helium extraction plant project have been completed, and materials have recently been put into trial operation. The company also signed a nitrogen gas supply contract with Shuneng Mining Company, achieving the first contract related to industrial gas supply services.
Patents come first, and clean energy investment continues to advance. The company announced on May 8 that it intends to build a clean energy project in Yuanping, Shanxi. The project plans to use low-grade coal from around Yuanping to produce LNG, hydrogen and hydrogen compounds (synthetic ammonia) and other clean energy-related products. The company invested nearly 10 million yuan in R&D in the first half of 2023 and obtained a number of patents. The patents cover CO cryogenic separation systems, coal mine gas production LNG processes, etc., which are closely related to clean energy projects. We believe that the company's clean energy investment is expected to accelerate. In the future, the company will expand its revenue scale through clean energy investment to help achieve equity incentive goals.
Risk factors: risk of macroeconomic fluctuations; risk of shortage of manpower under the company's high growth rate; risk of increased competition in the company's gas operation business; risk of capital pressure in the company's gas operation business; risk that the company's business progress falls short of expectations; risk that the company's business progress falls short of expectations; risk that new construction projects fall short of expectations.
Profit forecast, valuation and rating: Considering that the company's cryogenic equipment business has improved and has development potential, the gas operation business and clean energy investment are progressing steadily, and the long-term hydrogen energy layout is in place. We maintain the company's revenue forecast for 2023/24/25 at 814/1,05/1,223 million yuan. We valued the company by referring to the valuation levels of air separation equipment industry Hangzhou Oxygen Co., Ltd., gas operator Walter Gas, and hydrogen energy storage and transportation equipment manufacturer Houpu Co., Ltd. According to Choice data, Hangzhou Oxygen Co., Ltd. and Walter Gas have agreed PB expectations for 2023 are 3.54x/4.93x, and Houpu Co., Ltd. did not agree. Therefore, instead of using its median PB value of 4.75x in the past three years, and using the average value of 4.41x of the three as the company's PB valuation, we raised the company's target price to 28 yuan to maintain the “increase in holdings” rating.