1H24 results are basically in line with our expectations

The company announced 2024H1 results: revenue of 4.25 billion yuan (+16.8%) and net profit of 0.517 billion yuan (+1.2%) to mother. 2Q23 The company's exchange earnings in a single quarter were 0.18 billion yuan, putting pressure on high-base profit margins (net profit margin 19.1%). Excluding the impact on exchange earnings, 1H24's net profit was 0.52 billion yuan, with a year-on-year growth rate of 49.8%. Ongoing orders were steadily fulfilled, and the performance was basically in line with our expectations.

Stable gross margin and optimized cost ratio. 2Q24/1H24's gross margin was +2.9/0.8ppt to 34.1%/32.7% year over year, mainly due to a slowdown in revenue growth in the S2B business with low gross margin. 1H24's sales/management/R&D expense ratio was -1.2/-1.1/-0.7ppt year-on-year, and the refined management was very effective.

Industrial software has gradually slowed down, and the growth rate of instruments is impressive. By business, in the first half of the year, the company's control system revenue was 1.725 billion yuan (+17.65% year over year); industrial software revenue was 1.11 billion yuan (+3.23% year over year); and instrumentation achieved revenue of 0.353 billion yuan (up 72.18% year over year). In terms of industrial software, the company successfully signed the first subscription membership with Shanghai Huayi Engineering Co., Ltd. in June, which is of pioneering significance in the field of process industry.

New overseas orders are growing rapidly, and intelligent robot applications are pioneering. 1H24's share of overseas business revenue increased to 8%, with an overseas team of nearly 300 people and set up 6 subsidiaries in Singapore, Saudi Arabia, Kazakhstan and other countries. 1H24 signed a new overseas contract of 0.5 billion yuan, an increase of 63.82% over the previous year. The company and Saudi Aramco are actively exploring the application possibilities of AMR/inspection robots.

Development trends

Dig deeper into structural growth and nurture emerging business opportunities. The company explores opportunities in oil and gas, coal chemicals, liquor, etc. The 1H24 oil and gas industry's revenue increased by 117.32%, and the pharmaceutical and food industry's revenue increased by 29.23%. Furthermore, in the first half of this year, the company invested 0.8 billion yuan in foreign equity (of which 0.1 billion US dollars were used to establish private equity funds), laying the foundation for developing new opportunities.

Profit forecasting and valuation

Considering that the industrial software and S2B business is in transition, we lowered our 2024/2025 revenue by 7.5%/11.7% to 9.9/11.4 billion yuan. Considering that the increase in profitability exceeded expectations, we kept our net profit forecast unchanged. Current stock prices correspond to 2024-2025 P/E 21.9/17.9x, respectively. Considering the decline in valuation preferences in the process automation sector, we lowered our target price by 13% to 45 yuan, corresponding to 26.8 times the 2024 price-earnings ratio. There is 22% room for an increase compared to the current stock price, maintaining the outperforming industry rating.

risks

Industrial software promotion falls short of expectations, penetration of new industries falls short of expectations, etc.