The performance of 23Q2 is lower than expected, mainly due to the increase of R & D and recruitment expenses. We believe that with the rapid growth of energy storage shipments in the future and the gradual putting into use of the construction capacity of the company, the gross profit margin will be repaired under the scale effect, and the company is expected to usher in a period of rapid growth in revenue and profits. Due to the lower-than-expected economic recovery and lower-than-expected energy storage income in the first half of the year, we downgrade the company's 2023-2025 net profit forecast to 225 million / 359 million / 484 million yuan, corresponding to the EPS forecast of 1.34 billion 2.13 pounds 2.87 yuan respectively. With reference to comparable companies (Invik, Jiatu, Shenling Environment) with an average PE multiple of 37 times in 2023 (Wind consensus forecast), and the compound growth forecast of return net profit over the next three years, the company will be given 40 times PE in 2023, lowering its target price to 54 yuan and maintaining its "buy" rating.

23H1 performance is lower than expected, increasing R & D, recruiting talents and increasing expenses. On the evening of August 22, 2023, the company released its semi-annual report in 2023. 23H1 achieved revenue of 705 million yuan (year-on-year + 75.7%), net profit of 67 million yuan (+ 38.9%), and non-return net profit of 58 million yuan (+ 61.4%). The performance was lower than expected, and the revenue growth came from energy storage temperature control (about 250 million yuan in the first half of the year). 23Q2 has revenue of 432 million yuan (year-on-year + 102.3%) and net profit of 39 million yuan (year-on-year + 41.6%). The main reasons why the growth rate of homed net profit is lower than that of revenue growth are: 1) the reduction of government subsidies, there is no subsidy in the first half of this year, and the amount of subsidies in the same period last year was 4.5 million yuan; 2) administrative expenses and R & D expenses have increased significantly. We believe that with the rapid increase in the demand of the energy storage industry in the second half of the year, under the large-scale effect of temperature control of energy storage, the company's gross profit margin is expected to gradually pick up, the expense rate is expected to continue to decline, and the return net profit is expected to continue to grow at a high speed.

23Q2 gross profit margin, net profit margin year-on-year, month-on-month decline. The company's 23Q2 gross profit margin is 25.44%, year-on-year-1.47pcts, month-on-month-2.72pcts, net profit 8.95%, year-on-year-3.83pcts, month-on-1.44pcts.

The year-on-year and month-on-month decline of 23Q2 gross profit margin is mainly due to the influence of product structure, and the proportion of power electronics revenue with low gross profit margin has greatly increased. In the first half of this year, the company's power electronics industry revenue was 370 million yuan (year-on-year + 353%), and gross profit margin was 22.5%. The overall expense rate of 23H1 has increased, and the sales expense rate / management expense rate / R & D expense rate / financial expense rate is respectively higher than that of the same period last year-0.07/+0.42/+1.08/-0.44pcts. The company actively participates in all kinds of exhibitions, expands the sales force, increases R & D efforts, promotes new product development and existing product iteration, and recruits outstanding R & D talents and raises salaries. 23H1 R & D expenses are 36.99 million yuan, including 21.3 million yuan for R & D personnel and 12.74 million yuan for the same period last year, which helps to enhance the company's core competitiveness.

The growth of energy storage business has accelerated, and the capacity under construction has been gradually put into use. The company's 23H1 energy storage income is about 250 million yuan, which has exceeded 160 million yuan in 2022, achieving rapid growth. Secondly, in order to meet customer demand and actively reserve production capacity, according to the company's mid-2023 report, as of June 30, 2023, the self-financed "intelligent fluid control project" has been put into use, and the "energy storage heat management project" has completed the construction of the main structure. We expect Q4 to be available this year. The demand for energy storage at home and abroad continues to increase, the company's energy storage temperature control products are well received by customers, we expect the company's energy storage business may enter a period of rapid growth.

Risk factors: market competition intensifies; raw material prices fluctuate sharply; new products and new areas expand less than expected; talent, R & D personnel drain; the company's capacity release falls short of expectations.

Earnings forecast, valuation and rating: 23Q2 performance is lower than expected, mainly due to increased R & D, recruitment and increased expenses. We believe that with the rapid growth of future energy storage shipments and the gradual commissioning of production capacity under construction, the gross profit margin will be repaired under the scale effect, and the company is expected to usher in a period of rapid growth in revenue and profits. Due to the lower-than-expected economic recovery and lower-than-expected energy storage revenue in the first half of the year, we downgrade the company's 2023-2025 net profit forecast to 225 million / 359 million / 484 million yuan (original forecast: 268 million / 394 million / 522 million yuan), corresponding to the EPS forecast of 1.34 pounds 2.13 pounds 2.87 yuan respectively. With reference to comparable companies (Invik, Jiatu, Shenling Environment) with an average PE multiple of 37 times in 2023 (Wind consensus forecast), we expect the company to return to its parent net profit compound growth rate of more than 40% in the next three years, giving the company 40 times PE in 2023, lowering its target price to 54 yuan and maintaining its "buy" rating.