Incident: The company recently released its semi-annual report for 2023. In the first half of the year, it achieved operating income of 4.17 billion yuan, +1.7% year-on-year, and realized net profit of 4.1 billion yuan, +34.0% year-on-year. Looking at the second quarter alone, the company achieved operating income of 2.17 billion yuan (+2.8%) and net profit of 240 million yuan (+18.5%).

The gross margin increased steadily, with 23H1 gross margin reaching 16.4%. 23H1 gross margin increased by 2.1 PCT year on year, net sales margin after deducting 2.4 PCT increased by 9.8% year on year. Profitability bucked the trend, demonstrating the company's strong moat in terms of technical accumulation, lean management and customer resources.

The devaluation of the RMB increases export efficiency, and the recovery in downstream demand drives an increase in asset impairment losses. 2023Q2's financial revenue was 29.21 million yuan, while 23Q1's financial expenses were 28.28 million yuan, which is an increase in exchange earnings due to RMB depreciation; in terms of asset impairment, 23Q2 achieved a profit of 4.96 million yuan in asset impairment losses, while 23Q1's asset impairment loss was 3.09 million yuan. Downstream automobile manufacturers took the initiative to go to storage in the first quarter, while the downstream market gradually recovered in the second quarter, and increased demand led to a recovery in asset impairment losses.

Product market development is positive, and the company's development prospects are optimistic. The company's products not only develop steadily in aluminum heat transmission, but also have good development prospects in the fields of energy storage, liquid cooling and air conditioning heat exchangers. Among them, the company uses cold plate technology for liquid cooling. With the rapid growth of the AI industry, data centers will adopt more liquid cooling methods in the future, and demand for liquid cold plates is expected to drive the company's development of new application fields.

Considering the depreciation of the RMB exchange rate, we lowered our financial expenses assumptions and predicted that the company's earnings per share in 2023-2025 would be 0.84, 0.95, and 1.07 yuan (originally 0.79, 0.95, and 1.07 yuan), respectively. According to the price-earnings ratio of a comparable company of 21 times in 23 years, the corresponding target price was 17.64 yuan, maintaining the buying rating.

Risk warning

There is a risk that the Chongqing plant's production capacity will fall short of expectations, the risk that the processing cost of aluminum sheet and foil will fall short of expectations, the risk that the industry's production capacity will be released too quickly, that macroeconomic growth will slow down, that the global epidemic will be repeated, and that the expansion of new application fields will fall short of expectations.