Introduction to this report:

The company's 2023 mid-year report fell short of expectations. The company's revenue growth in the first half of the year was still weak, competition in the shock absorption market was still fierce. The company maintained high-margin products, controlled low-price orders, and worsened customer repayments and increased credit impairment, putting pressure on net interest rates.

Key points of investment:

Maintain the “increase in holdings” rating. The company achieved revenue of 204 million yuan in Q2, +0.56% year-on-year, and net profit of 10.8 million yuan, or -51.11% year-on-year, below expectations. After the earthquake regulations were implemented, market expansion fell short of expectations and industry competition intensified. The 2023-25 EPS was lowered to 0.41 (-0.67) /0.68 (-1.17) /0.92 yuan, which is 35 times the company's PE in 24, and the target price was 23.80 yuan.

Demand has not been released enough, and revenue growth is under pressure. In the first half of the year, the company achieved revenue of 233 million yuan and 94 million yuan for seismic isolation and shock absorption products, respectively, compared with -17% and -35% year-on-year. Looking at the subregion, with the exception of a flat and slight increase in revenue in the South China market, the North China/Southwest China/Northwest China market have all declined markedly. We judge that the shortage of capital levels is still the main factor limiting the market within the legislation. We expect the company's current order volume to be 800 million yuan, which is basically the same as the previous month. Part of the reason is that it has controlled the shipment of low-priced orders.

The gross margin is stable, and credit impairment is dragging down the net interest rate. In the first half of the year, the gross margin of the company's isolation and shock absorption products was 39.46% and 39.27% respectively, compared to 3.36 pct, -0.89 pct. Q2 The company's overall gross profit margin was 41.40%. In the context of increasing competition in the industry, the company's gross margin was basically stable around 40%. On the one hand, it shows that the quality of the company's products is excellent, and on the other hand, it is also the result of controlling low price orders. Q2 Credit impairment was $21.43 million, mainly due to an increase in bad accounts receivable.

The optimization of the industry pattern still depends on the implementation of quality standards and rules. The effects of the implementation of the anti-seismic regulations are currently still below market expectations. We believe that the first problem is the conflict between regional financial capacity and seismic demand. Second, the regulations provide potential space, spawn a large number of new entrants, yet fail to provide further standards and rules for quality audits. As a result, it is difficult for the company to take advantage of its advantages as a leader in brand and product power. The implementation of provincial rules is the key for the company to achieve a sharp rise in volume and price.

Risk warning: Policy implementation falls short of expectations, and price competition intensifies.