In 2023 H1, both the revenue and profit of listed companies increased significantly, and their profitability further increased.

We believe that the company, as a leader in laser welding equipment in China, is expected to continue to benefit from the increase in the penetration rate of laser welding technology in various industries. Maintain a “Highly Recommended” investment rating.

Revenue and net profit have increased dramatically, and profitability has further improved. (1) In H1 in 2023, the company achieved operating income and net profit of 1.7 billion yuan and 199 million yuan, respectively, up 72.33% and 183.12%, respectively; in the Q2 quarter of 2023, the company achieved operating income and net profit of 934 million yuan and 111 million yuan, respectively, with year-on-year increases of 51.81% and 100.79% respectively. (2) The company's profitability further increased. In H1 in 2023, the company's gross margin was 35.65%, down 1.26 pcts from the previous year, and the net interest rate was 11.7%, up 4.58 pcts from the previous year; in the Q2 quarter of 2023, the company's gross margin and net interest rate were 35.34% and 11.87%, respectively, with year-on-year changes of -0.65 pcts and 2.88 pcts, respectively, with a year-on-year change of -0.68 pcts and 0.38 pcts. (3) The increase in the company's profitability is mainly due to the decline in various expense rates due to the scale effect. In H1 in 2023, the company's sales expenses rate, management expenses rate, and R&D expenses rate were 3.8%, 14.59%, and 6.21%, respectively, down 0.96 pcts, 5.8 pcts, and -0.93 pcts, respectively, from the same period last year. Among them, the management expense rate dropped significantly from the same period last year. We believe that in the future, as the company's revenue volume further increases, there is still some room for the company's net interest rate to increase.

The number of orders in hand is full, providing a guarantee for future performance. (1) Orders on hand were 4.6 billion yuan (tax included), an increase of 3.24% over the same period last year. Considering that there is a certain cycle of order execution, we believe the company's performance in the second half of the year will still be good. (2) From a marginal perspective, at the end of 2022, the company had orders of 4.531 billion dollars. Based on the company's revenue situation in the first half of the year, we estimate that the company added about 2 billion dollars (tax included) of orders in the first half of the year, and still maintained a steady and positive trend in order taking orders.

Blue laser applications have been implemented, and we are optimistic about future development trends: In the first half of 2023, the blue optical fiber composite welding models UW-B5320M and UW-B6420M based on 2KW blue lasers completed client delivery, and the blue light module completed iterative upgrades. Among them, the power output of the 2KW optical module broke through to 2700W under the rated 3A current. Overall laser stability and long-term power reliability were greatly improved. When welding metals such as copper and aluminum, blue lasers can reach several times the efficiency of current mainstream infrared lasers, and have broad application prospects. Currently, only a few companies in the world have mastered this technology. The gradual expansion of the application of blue light lasers is expected to become a new opportunity for the company to lead the development of the industry.

Maintain a “Highly Recommended” investment rating. Lianying Laser is one of the laser welding equipment suppliers with the largest output value and the most advanced technology in China. It has its own unique advantages in terms of accumulating basic technology. The penetration rate of laser welding in all walks of life continues to increase, and the company will continue to lead the development of the industry and will continue to benefit. The company's revenue for 2023-2025 is estimated to be 4428/54.52/6.069 billion yuan respectively, net profit attributable to shareholders of listed companies is 573/772/903 million yuan, and PE corresponding to the current market value is 16.2/12.9/10.3 times, respectively. Judging from valuation, the company's PB and PE are at the bottom of history.

Risk warning: (1) Risk of investment fluctuations in the power battery industry: Currently, a large percentage of the company's revenue comes from the automatic power battery industry. If investment in this industry fluctuates greatly, it may affect the company's order rate; (2) the risk that demand falls short of expectations due to macroeconomic fluctuations: the current global macroeconomic situation is still unclear. If there is a serious decline in the global macroeconomic economy, the company will be negatively affected; (3) Increased competition risk: Although the company is currently the most technologically advanced laser welding equipment manufacturer in China, the risk of increased competition is not ruled out; (4) Talent drain Risk: The industry where the company is located is a typical technology and talent-intensive industry. If core talent is lost, it will have a negative impact on the company.