Investment event: The company disclosed its 2023 semi-annual report. In the first half of 2023, the company achieved operating income of 4.801 billion yuan, an increase of 3.84% over the previous year; realized net profit of 298 million yuan, an increase of 12.81% over the previous year; deducted 263 million yuan in non-net profit, an increase of 0.54% over the previous year. Q2 The company's revenue for a single quarter was 3,063 billion yuan, down 0.24% year on year, up 76.28% month on month; net profit was 195 million yuan, down 2.34% year on year, and up 89.26% month on month.

23H1's overall performance grew steadily, with overseas revenue accounting for more than 30%. The growth rate of production capacity expansion of domestic battery companies has slowed down, and demand for tenders has declined. 23H1's lithium battery equipment revenue was 3,259 billion yuan, a year-on-year decrease of 26.10%. In the context of the rapid development of new energy vehicles around the world, overseas battery companies have accelerated the expansion of production. The company has been deeply involved in lithium battery equipment for more than ten years, and has reached in-depth cooperation with overseas customers such as German Volkswagen, BMW, ACC, and LG New Energy. The share of overseas orders increased. In the first half of the year, lithium battery equipment accounted for more than 30% of overseas revenue.

The share of the highly profitable e-cigarette business has increased, combined with continuous optimization of management and management capabilities, and the company's profit level has increased markedly. The e-cigarette business has a strong profit level, with gross margin and net interest rates of 40.91% and 29.11% respectively in the first half of 2023. 23H1's e-cigarette business accounts for nearly 30% of revenue, effectively boosting the company's profit level. 23H1's comprehensive gross margin was 26.65%, +7.28pct; net margin was 10.19%, +4.41pct year on year. Among them, gross margin for the Q2 quarter was 28.20%, year-over-year/month-on-month +7.65pct/4.27pct; net margin was 10.94%, year-over-year/month-on-month +3.94 pct/2.08pct; they all improved for three consecutive quarters. On the cost side, 23H1's sales expense ratio was 2.29%, year-on-year -0.08pct; the management expense rate was 2.87%, +0.46pct; with continued product technology development, the R&D expense ratio was 6.83%, +1.89 pct.

Overseas markets are booming, and Scholl's e-cigarette business is rapidly expanding. The global e-cigarette market is growing rapidly, +20% year-on-year in 2022. Among them, disposable e-cigarettes are growing explosively, and the penetration rate is rapidly increasing. The United States, the United Kingdom, and Canada are among the top three e-cigarette consumers in the world. Since 2022, Scholl has vigorously developed its own brand business and obtained TPD certification for new European e-cigarette products. In March of this year, Scholl set up a wholly-owned subsidiary SKE E-CIGS UK LTD in the UK to focus on expanding the e-cigarette market in the UK and Europe. With product technology advantages and the multi-channel development of supermarkets, Scholl has risen rapidly in the UK market, with sales jumping from 7th place in January this year to 4th place in April. On the other hand, China is a major e-cigarette exporter. In the first half of '23, it exported 5.482 billion US dollars of e-cigarettes, an increase of 29.16% over the previous year. In July of this year, the Office of the State Tobacco Monopoly Administration issued the “Guidelines on Promoting the Establishment of a Quality Assurance System for Exported E-cigarette Products” to further improve e-cigarette export quality management and reduce the business risks of exporting enterprises. Scholl has made breakthrough progress in developing overseas markets. In the first half of 2023, it achieved revenue of 1,433 billion yuan, a year-on-year increase of 1477.33%; realized net profit of 417 million yuan, which reached 76% of the previous year. Benefiting from strong demand from overseas markets, Scholl's performance is expected to maintain a high growth trend. The e-cigarette business, which has high profitability and repayment capacity, will contribute to Yinghe Technology's performance flexibility.

Profit forecast and investment suggestions: The company is expected to achieve net profits of 831 million yuan, 1,210 million yuan, and 1,630 million yuan respectively in 2023-2025. The corresponding EPS is 1.28, 1.86, and 2.51 yuan, and the corresponding PE is 19 times, 13 times, and 10 times, maintaining recommended ratings.

Risk warning: Risks such as economic recovery falling short of expectations, new product expansion falling short of expectations, rapid iteration of core technology, increased market competition, fluctuating raw material prices, and concentration of material suppliers.