Incident: The company released its semi-annual report for 2002. 2023H1 achieved operating income of 1,355 million yuan, a year-on-year decrease of 8.32%; net profit attributable to shareholders of listed companies was about 90 million yuan, a year-on-year decrease of 37.26%.

Key points of investment

Short-term performance is under pressure, and the company responds positively. 2023H1 achieved operating income of 1,355 million yuan, a year-on-year decrease of 8.32%; net profit attributable to shareholders of listed companies was about 90 million yuan, a year-on-year decrease of 37.26%. Among them, 2023Q2 achieved operating income of 918 million yuan, a year-on-year decrease of 10.29%; net profit of Gimu was about 75 million yuan, a year-on-year decrease of 41.84%. In the first half of 2023, the company was affected by factors such as increased competition in the industry, order fluctuations, and product delivery adjustments. Revenue related to the defense sector was about 692 million yuan, a year-on-year decrease of 17.00%.

It has many advantages, and its core competitiveness is obvious. The controlling shareholder of the company is the largest shipbuilding group in the world. It is also a large-scale comprehensive enterprise group with the widest coverage of China's naval equipment business. Relying on the strong resource advantages of the controlling shareholder, the company can form a comprehensive competitive advantage through multi-channel, multi-level, and multi-dimensional resource integration and technological innovation. The company's existing assets inherit the strong scientific and technological innovation capabilities and relatively complete science and technology innovation system of the electronic information sector business owned by the controlling shareholder. It has accumulated a large number of cutting-edge scientific and technological achievements. In some fields of electronic defense equipment, it is in a dominant position in industry scientific and technological innovation. Subsidiary enterprises have received 36 national science and technology awards and 152 provincial and ministerial science and technology awards by the end of the reporting period, with obvious advantages in technology research and development.

The industrial layout continues to be promoted, and strategic emerging industries are developing steadily. The company closely follows the national strategic emerging industry policy, actively explores multi-channel markets, and promotes the rapid development of related industries. During the reporting period, the company achieved business revenue of about 650 million yuan in the non-defense sector, an increase of 3.56% over the previous year. In terms of the oil and gas-related equipment business, new progress was made in market development during the reporting period, and the LNG series products successfully secured 12 LNG carrier saddle projects from the Hudong-China Shipyard. In the direction of smart cities, during the reporting period, the company developed a total of 3 new markets and new customers. Among them, the Lianyungang Public Security Traffic Police Detachment successfully implemented the 155 million yuan smart transportation project, achieving the first historic breakthrough in the 100 million yuan order. In the direction of smart ocean, while deeply involved in the Shandong market in the smart port field, the company is actively exploring new markets in Jiangsu and other places. In the direction of intelligent manufacturing, the company used the processing of components supporting wind power as a breakthrough to gradually extend projects related to intelligent manufacturing production lines to other industries.

Profit prediction and investment rating: Considering the pace of downstream equipment release, we expect net profit to be 6.71 (-1.73) /9.00 (-1.98) /11.58 (-2.28) billion yuan in 2023-2025. The corresponding PE is 24/18/14 times, respectively, maintaining the “increase in holdings” rating.

Risk warning: 1) downstream demand and order fluctuations; 2) rising raw material prices; 3) the risk of high customer concentration.