Incident: The company released its 2024 semi-annual report. 1H2024 achieved operating income of 0.497 billion yuan, a year-on-year increase of 17.14%; realized net profit to mother of 0.083 billion yuan, a year-on-year decrease of 16.81%; and realized deducted non-net profit of 0.069 billion yuan, a year-on-year decrease of 25.84%.

Q2 Gross margin rebounded month-on-month, increasing investment in R&D. 2Q2024, the company's gross margin increased 2.02 pcts month-on-month and recovered to 43.71%. We believe that the company's first quarter was affected by coincidental factors such as project confirmation. The gross margin was low, and the company's gross margin is expected to remain basically stable in the future. With 2Q2024, the company's sales, management, and R&D expenses increased by 1.69 pcts, -0.93 pcts, and 2.10 pcts respectively. By the end of June, the company's R&D personnel reached 340, accounting for 35.71%, an increase of 26 over the beginning of the year, increasing R&D investment.

Driverless mine technology will be commercialized, and the process of intelligent and unmanned mining will be promoted.

At present, driverless driving in domestic open pit mines has been applied on a large scale, and well mining faces multiple challenges such as lack of satellite signals, presence of flammable and explosive gases, insufficient lighting conditions, and small space, which places higher demands on the advancement of driverless technology and enterprise strength. 1H2024, the company overcame the “Multi-source Fusion Sensing Technology for Complex Environmental Obstacles in Mines” and successfully won the bid for Shaanxi Coal Group's “Research and Application of 5G+ New Energy Driverless Technology in Mines” project, with a bid amount of 14.857 million yuan, and is expected to be delivered in the second half of 2024.

Actively open up new chemical markets and open up a second growth curve. With accumulated experience and product advantages in the coal mining industry, the company actively expanded the intelligent chemical industry chain, developed systems such as intelligent inspection, precise personnel positioning, hazard source management, and personnel protection mechanisms; successfully accepted the “Personnel Positioning System Construction Project Contract” and “Emergency Broadcasting System” projects signed with Beiyuan Group, and realized functions such as accurate indoor and outdoor three-dimensional positioning, personnel behavior safety control, and emergency plan management in production informatization scenarios. 1H2024, the company reached cooperation intentions and signed orders with a series of customers in the field of intelligent chemicals, marking that the intelligent chemical business has been recognized by the market.

Investment advice: The company is a leading enterprise in coal mine informatization. It thoroughly understands mining scenarios, introduces new products of mining robots, and actively expands new chemical and non-coal mining markets. We expect the company to achieve operating income of 1.21, 1.508, 1.892 billion yuan and net profit of 0.246, 0.325, and 0.411 billion yuan in 2024-2026. The corresponding PE is 15, 11, and 9 times, respectively, maintaining the “gain” rating.

Risk warning: Policy support falls short of expectations; coal companies' willingness to invest falls short of expectations; new market expansion falls short of expectations.