Incident: On July 15, the company released the “2024 Semi-Annual Results Report”. In the first half of 2024, it is expected to achieve total operating income of 3.74 billion yuan, +4.07% year over year; net profit to mother/ net profit after deducting net profit from non-mother 0.36/0.314 billion yuan, respectively, +2.00%/+5.49% year over year.

Increased downstream development compounded by narrowing non-recurring profit and loss, and 2024Q2's performance slightly exceeded expectations. On a quarterly basis, 2024Q2 expects to achieve total operating income of 2.173 billion yuan, +6.82% year over year; realized net profit to mother of 0.212 billion yuan, -0.92% year over year; non-recurring profit and loss narrowed from 0.039 billion yuan in the same period last year to 0.02 billion yuan, achieving net profit after deducting 0.191 billion yuan compared to the same period last year, +9.83% year-on-year, with a net interest rate of 8.80%, +0.24pct year-on-year.

Continuing to increase the share of the middle and high-end market, it is expected that going overseas will build new momentum. In terms of high-end automation instruments, localization substitution is still in its infancy. Chuanyi Co., Ltd. is a leading domestic enterprise, and has maintained a share of R&D investment of more than 7% in the past two years, and has obvious advantages in product categories and industry endorsements; the company has fully exploited major markets such as petrochemicals, metallurgy, electricity, etc., vigorously expanded new markets for hydrogen energy, lithium electricity, pharmaceuticals, etc., and continued to increase the penetration rate in the middle and high-end markets. Products such as 1E/non-1E thermal diffusion mass flow meters and high temperature ball valves have all achieved breakthroughs. At the same time, the company has begun to rapidly deploy overseas markets in the past two years. It is expected that there will be an order breakthrough in the short term. The overseas market for process industry instruments is several times larger than the domestic market, and there is huge room for growth.

The fixed increase has not been approved; further investigation and judgment will be carried out. On March 14, the company announced a fixed increase plan for specific targets. It plans to issue 29.7565 million additional shares (accounting for 7.53% of the total share capital) to Silian Group at an issue price of 22.18 yuan/share (over the current share price of 34.43%), raising a total of no more than 0.66 billion yuan for intelligent control valve construction projects and liquidity supplementation. According to the “Notice of Resolutions of the 2024 First Extraordinary General Meeting of Shareholders” on July 15, this fixed increase was not approved. The main reason is that some shareholders believe that this refinancing will greatly dilute the existing shareholders' holdings in the short term, and the company will further evaluate the refinancing plan in the future.

Profit forecast: Maintain the company's “gain” rating. The company is a leading domestic industrial automation instrument enterprise. There is huge room for localization, and overseas orders will break through in the short term. We believe that the company can maintain steady growth within 3-5 years. It is expected that in 2024-2026, the company will achieve operating income of 8.408/9.67/11.12 billion yuan, and achieve net profit of 0.833/0.956/1.111 billion yuan. The corresponding PE is 10.79x/9.41x/8.10x, respectively.

Risk warning: downstream demand falls short of expectations, industry competition intensifies, policies fall short of expectations, localization substitution progress falls short of expectations, profit forecasts and valuation models fall short of expectations