The company released its 2023 mid-year report, with 2023H1's revenue of 331 million yuan, a decrease of 23.21%; net profit of 15 million yuan, a decrease of 72.79%; and EPS of 0.06 yuan, a decrease of 73.31%. The seismic isolation legislation system is becoming more and more perfect, and the seismic vibration dual control market is expected to open up new room for growth. Maintain the company's buying rating.

Key points to support ratings

Interim results continued to be under pressure: 23Q2, the company's revenue was 204 million yuan, an increase of 0.56%; net profit was 111 million yuan, a decrease of 51.11%. 23H1's net operating cash flow was -128 million yuan, from positive to negative year-on-year, a decrease of 410.52%; 23Q2's net operating cash flow was -91 million yuan, a decrease of 219.75%. The company's operating cash outflow in the first half of the year was high. This was mainly due to a decrease in sales revenue during the reporting period compared to the same period of the previous year, a large amount of unexecuted contracts signed, increased stocking, and a decrease in government subsidies and value-added tax withholding tax refunds.

Profitability declined, and the cost ratio increased year-on-year during the period. 23H1's gross profit margin was 39.85%, down 2.63 pct; homologated net interest rate was 4.49%, down 8.18 pct. 23Q2 The company's gross margin was 41.40%, a decrease of 6.70 pct; its net profit margin was 5.30%, a decrease of 5.60 pct. The cost rate for 23H1 during the period was 31.54%, an increase of 9.24 pct. Among them, the sales/management/R&D/financial expense ratio changed by 0.73/2.99/3.71/1.81 pct, respectively, over the same period last year. The company's cost rate increased year-on-year in the first half of the year. Among them, the R&D expenditure rate increased significantly year-on-year.

The share of business in the southwest region increased year-on-year. By region, the company's seismic isolation business covered Southwest China, South China, North China, and Northwest China. Among them, the southwest region accounted for 40.63% of revenue in the first half of the year, an increase of 5.75 pct; South China accounted for 25.31% of revenue, an increase of 5.98 pct. 23H1's revenue share in North China and Northwest China declined, with a year-on-year decline of 0.56 and 8.95 pct, respectively. In terms of gross margin, gross margins in southwest China and northwest China dropped significantly year-on-year, at 7.81 pct and 4.38 pct, respectively, while gross margins in South China and North China increased by 3.80 pct and 3.26 pct, respectively.

The seismic isolation legislation system is becoming more and more perfect, and the seismic vibration dual control market is expected to open up new room for growth. After the “Regulations on the Administration of Seismic Resistance in Construction Projects” were officially implemented, relevant supporting legislation was introduced one after another, and the seismic insulation legislation system was increasingly improved, which is conducive to an increase in the proportion of seismic isolation products used in buildings. In addition to the construction sector, demand for seismic isolation technology in subway buildings, industrial plants, industrial facilities, etc. is also constantly growing, and demand for special vibration control in many special industries is also constantly emerging. The growing demand for vibration reduction (vibration) equipment products and technology in daily life and production is expected to open up new growth space for seismic isolation companies.

valuations

The company's performance declined significantly in the first half of the year, so we should lower our profit forecast. It is estimated that the company's revenue for 2023-2025 will be 760 million, 1.0 billion yuan, and 1.3 billion yuan; net profit due to income will be 0.8, 120 million yuan, and 170 million yuan respectively; and EPS will be 0.33, 0.48, and 0.70 yuan respectively. Maintain the company's buying rating.

The main risks faced by ratings

The rise in raw material prices exceeded expectations, the implementation of the policy fell short of expectations, and the progress of capacity expansion fell short of expectations.