Event: On August 27, 2023, Dayuan Pump released its semi-annual report for 2023. 2023H1 achieved total revenue of 904 million yuan (+33.70%), net profit of 167 million yuan (+68.31%), net profit of non-attributable income of 162 million yuan (+70.79%). In a single quarter of 2023Q2, the company achieved total revenue of 542 million yuan (+29.76%), net profit of 107 million yuan (+46.79%), net profit of non-attributable income of 104 million yuan (+46.95%).

The revenue side of 2023Q2 is growing rapidly, and the household shielded pump business has achieved a high growth rate. 1) On a quarterly basis, 2023Q2 achieved revenue of 542 million yuan (+29.76%), or due to the gradual recovery of the company's traditional business, a sharp increase in revenue from shielded pump products, and a significant increase in revenue from shielded pump products. At the same time, new categories continued to expand in terms of market and customers, helping to optimize the company's sales structure. 2) By business, 2023H1's main pump products for civilian pumps and household shielded pumps achieved revenue of about 305 million yuan (+11%) and 390 million yuan (+64%), respectively. The household shielded pump business achieved high growth with the combined help of a low domestic base and remarkable achievements in developing new overseas markets; the industrial shielded pump and liquid-cooled pump business achieved revenue of about 130 million yuan (47% year-on-year increase) and 0.2 billion yuan (80% + year on year). The industrial shielded pump revenue grew rapidly, and the liquid-cooled pump business performed brilliantly.

2023Q2 The gross net profit margin increased significantly, and the overall cost investment increased during the period. 1) Gross profit margin: 2023Q2 gross margin was 33.22%, +4.37 pct year on year, or due to the company's product structure upgrade compounded by falling raw material prices. 2) Net interest rate: 2023Q2 net interest rate was 19.47%, +2.05pct year on year. The increase was less than gross profit margin, and the main company's expense ratio increased during the period. 3) Expense rate: 2023Q2 sales/management/R&D/financial expense ratio was 4.50/5.23/3.74/ -2.87%, year-on-year respectively, +1.25/+0.35/+0.58/+0.12pct, respectively. The increase in sales expense ratio and main business development led to an increase in sales staff costs and marketing expenses, and an increase in R&D expense rates for major companies to increase investment in R&D.

The R&D side continues to consolidate technical barriers, and the channel side has a comprehensive and in-depth layout at home and abroad. 1) R & D side:

The company continues to increase investment in technology research and development to consolidate its own technical barriers. As of 2023H1, the company has 407 patents of various types, and has submitted related topics to the Anhui Provincial Science and Technology Department with Hefei, New Shanghai and Anhui Agricultural University, and successfully obtained the Yangtze River Delta Science and Technology Cooperation Project under the Anhui R&D Plan. 2) Channel side: a) Domestic side: The company's distribution system has achieved coverage throughout the province, and at the same time, with the implementation of the channel sinking strategy, it has penetrated deep into key counties. b) Overseas aspects: Customers in the company's overseas markets cover Europe, America, Asia, Africa and Oceania, effectively diversifying the risk of the company's dependence on a single market.

Investment suggestions: On the industry side, under the influence of factors such as increasing environmental pressure and the gradual decline in labor dividends, the market concentration in the civilian pump sector may continue to increase; domestic-funded enterprises have already competed head-on or even caught up with foreign leaders in some segments of high-end civilian pumps and shielded pumps, and there is plenty of room for domestic substitution. On the company side, as a leading diversified pump enterprise in the field of civilian water pumps and shielded pumps, the company will fully benefit from industry development. The company's smart factory construction in Wenling and Hefei is accelerating, and the “Dayuan” and “Xinshang” dual brand strategies promote the transformation and upgrading of the company's product structure and market strategy, and is expected to maintain rapid growth. We expect the company's net profit to be 339/4.28/526 million yuan respectively in 2023-2025, corresponding EPS to 2.04/2.56/3.15 yuan, respectively, and the corresponding PE at the current stock price to be 12.06/9.57/7.79 times, respectively. Maintain the “Recommended” rating.

Risk warning: Increased market competition, fluctuations in raw material prices, management risks due to rapid scale expansion, policy and exchange rate risks, etc.