Event: the company released its mid-2023 report on August 15, with 1H23 revenue of 1.98 billion yuan, YoY+57.5%; return net profit of 300 million yuan, YoY+30.0%; deduction of non-net profit of 270 million yuan, YoY+25.1%. The performance is in line with market expectations, and the growth is mainly due to sufficient orders and the growth of aerospace, power and petrochemical forgings business. Our comprehensive comments are as follows:

2Q23 revenue grew by more than 60% year-on-year; impairment losses and other gains affect apparent profits. 1) in a single quarter, the revenue of 2Q23 is 1.04 billion yuan, the net profit of YoY+60.6%; is 150 million yuan, and the net profit of YoY+27.1%; is 140 million yuan, YoY+23.0%. The revenue end of 2Q23 continues the trend of rapid growth. 2) in terms of profitability, 2Q23 gross profit margin increased by 0.6ppt to 27.1% compared with the same period last year, while net profit margin decreased by 4.0ppt to 14.9% year-on-year. 1H23 gross margin fell 0.3ppt to 26.7% year-on-year; net profit margin fell 3.2ppt to 15.0% year-on-year. The decline in 1H23 net interest rate was mainly due to an increase in impairment and other income, of which ① assets and credit impairment losses totaled 70 million yuan, an increase of 50 million yuan over the same period last year; other income decreased by 30 million yuan compared with the same period last year due to the reduction of VAT-exempt income from ② products and government subsidies. Together, impairment losses and other income affected the total profit in the first half of the year by 80 million yuan.

Petrochemical and electric forgings are growing rapidly, and the profitability of aerospace forgings is at a new high. Aerospace forgings: revenue 680 million yuan, YoY+20.0%, revenue share decreased 10.7ppt to 34.3%, gross profit margin increased 3.5ppt to a record high of 48.0% compared with the same period last year. 2) Petrochemical forgings: revenue 490 million yuan, YoY+69.3%, revenue share increased 1.7ppt to 24.7%, gross profit margin fell 0.3ppt to 17.8% compared with the same period last year.

3) Electric forgings: revenue 480 million yuan, YoY+297.0%, revenue share increased 14.6ppt to 24.2%, gross profit margin increased 24.9ppt to 18.7% compared with the same period last year. The rapid growth of the power sector in the first half of the year is mainly due to the rapid growth of wind power business and the rapid recovery of profitability.

Continue to increase investment in R & D; contract liabilities may reflect the continuation of high prosperity in the industry. The expenditure rate during the 1H23 period decreased by 0.5ppt to 7.3% compared with the same period last year, of which: the R & D expenditure increased by 67.9% to 90 million yuan compared with the same period last year, mainly due to the continuous increase in R & D investment in aerospace and new energy industries, and the R & D expense rate increased from 0.3ppt to 4.5%; the management expense rate decreased to 1.8% compared with the same period last year; and the sales expense rate was 1.5%, which was basically the same as last year. The financial expense rate was-0.5%, compared with-0.1% in the same period last year. By the end of 1H23, the company: 1) accounts receivable and bills 1.72 billion yuan, an increase of 22.8% over the end of 1Q23 2) inventory of 950 million yuan, an increase of 3.5% over the end of 1Q23 3) contract liabilities of 40 million yuan, an increase of 41.3% over the end of 1Q23, mainly due to the increase in advance payments caused by business growth. 4) the net cash flow of 1H23's operating activities was-90 million yuan, compared with-170 million yuan in the same period last year.

Investment suggestion: the company is one of the subdivided leaders of aerospace ring forging in China. With the promotion of fund-raising projects and the release of production capacity, the company will continue to benefit from the high prosperity in aerospace and new energy fields during the 14th five-year Plan period. Considering the prosperity of 1H23 aerospace and new energy sectors, we slightly adjust the net profit from 2023 to 2025 to 630 million, 820 million and 1.05 billion yuan, corresponding to 20x/15x/12x. Considering the strong downstream demand and the company's subdivision leading position, it will be given 25 times PE in 2023, corresponding to the target price of 130.75 yuan, maintaining the "recommended" rating.

Risk tips: market development is not as expected, raw material price fluctuations, product price fluctuations and so on.