Event: on August 17, 2023, the company released the "2023 semi-Annual report". In 2023, H1 realized operating income of 999 million yuan, year-on-year-19.02%, and net profit of 118 million yuan, + 17.30% over the same period last year. Deducting non-return net profit of 107 million yuan, an increase of 28.50% over the same period last year.

The demand for construction machinery and industrial transmission is lower than expected, and the company's Q2 revenue is under pressure: in the second quarter alone, the company achieved revenue of 454 million yuan,-31.05% compared with the same period last year. The net profit of home ownership is 52 million yuan, + 2.55% compared with the same period last year, which is mainly due to 1) the construction machinery is still in the bottoming period under the influence of factors such as the weakening demand for new real estate and the lower-than-expected operating rate of small and medium-sized infrastructure projects. as a result, orders in the domestic market are generally lower than expected. 2) the decrease in orders for industrial transmission products leads to a decline in revenue. At the same time, the new installed capacity of wind power increased year-on-year but lower than expected, and the installation plan of some mainframe plants was delayed, resulting in a lag in product sales and less than expected growth.

Product innovation is accelerated, product structure is optimized, and profitability has been improved. Looking at the second quarter alone, the company's sales gross profit margin / net sales profit margin was 26.09 6.37/3.88pct 11.65%, year-on-year + 6.37/3.88pct, month-on-month + 3.83/-0.66pct. The improvement in profitability is mainly due to (1) the change of the company's product sales structure and the decrease of period expenses compared with the same period last year; (2) the net profit of the participating company Xiaoshan Agricultural and Commercial Bank increased, which increased the company's investment income compared with the same period last year. (3) other income decreased compared with the same period last year, which reduced the non-recurring profit and loss compared with the same period last year. In the face of the uncertainty of global and domestic economic development, the company has strengthened market development and product innovation. in the first half of the year, the company completed 57 new product development and 12 key parts development to ensure market competitiveness.

We will continue to deepen internal reforms and gradually reduce costs and increase efficiency. On the one hand, the company will continue to optimize the organizational and management structure, increase the scope of performance incentives, and implement personnel training. On the other hand, the company will strengthen technical reform, promote the application of information systems, and improve the level of intelligent manufacturing and key process capabilities.

Investment suggestion: from 2023 to 2025, we expect the company to achieve an operating income of 2.03 billion yuan and a net profit of 2.53 million yuan and a net profit of 286 million yuan. The corresponding PE is 14.99, 13.23, 11.85 times, respectively, maintaining the "overweight" rating.

Risk hints: new product expansion is less than expected risk, macroeconomic prosperity is less than expected risk, raw material price fluctuation risk, competition pattern deterioration risk