Core views:

Incident: The company announced a pre-increase in 2024 semi-annual results. It is expected to achieve net profit of 0.459 billion yuan to 0.516 billion yuan in the 2024 half-year period, an increase of 60% to 80% over the same period of the previous year (financial data after restatement); it is expected to achieve net profit without deduction of 0.383 billion yuan to 0.437 billion yuan for the 2024 half-year period, an increase of 180% to 220% over the same period of the previous year (financial data after restatement).

Comment: The performance of the 24-year semi-annual report grew rapidly, the certainty of fundamentals was further enhanced, and profit flexibility was sufficient. According to the pre-performance increase announcement, according to estimates, the company's net profit for the 24Q2 quarter is expected to be 0.371 billion yuan to 0.428 billion yuan, up 46.63% to 69.31% year on year 23Q2, and 321.01% to 386.13% month on month; the company's 24Q2 net profit attributable to owners of the parent company is expected to be 0.329 billion yuan to 0.384 billion yuan, up 177.86% year on year 23Q2 to 224.00%, up 515.47% to 617.66% from 24Q1. According to the pre-performance increase announcement, the sales scale of the company's diesel engine segment continued to expand in the first half of 2024, and orders increased dramatically. The price and gross margin of the main product, marine low-speed engines, both increased, and sales volume of high-margin models increased year-on-year. At the same time, the sales scale of marine machinery expanded, and the increase in orders for products with higher gross margin led to an increase in profits. The company benefits from the replacement of elderly ships and the low-carbon transformation of shipping, which has increased the penetration rate of high-value dual-fuel engines, and the increase in the market share of Chinese shipyards has driven the growth of internal distribution orders. The new ship price index continues to rise, compounded by falling steel prices on the cost side. Gross margin elasticity is worth looking forward to, and fundamental certainty has increased significantly.

Profit forecast and investment advice: The company's EPS for 24-26 is expected to be 0.54/0.77/1.17 yuan/share, respectively. Benefiting from the continuous improvement in the shipping industry and the low-carbon transformation of shipping, we are optimistic that the company will rely on technical advantages or take the lead in benefiting, consider the company's leading position in ship power, refer to comparable company valuations, and give the company a PE valuation of 45 times in 24 years, corresponding to a reasonable value of 24.41 yuan/share, and give it an “gain” rating.

Risk warning: risks in the shipping industry, risks in the automobile industry, risk of price fluctuations of major raw materials, risk of exchange rate fluctuations.