Incident: The company announced its 2024 semi-annual results. During the reporting period, the company achieved revenue of 0.757 billion yuan, +16.17% year over year; realized net profit of 0.093 billion yuan, +20.64% year over year; realized net profit of 0.086 billion yuan without return to mother, +27.08% year over year. Looking at Q2 alone, revenue of 0.484 billion was achieved, a year-on-year increase of 25.98%, achieved net profit of 0.057 billion yuan, a year-on-year increase of 32.39%, and realized net profit of 0.056 billion yuan after deduction, an increase of 40.96% over the previous year.

The gross margin increased by 1.92 pct year on year, and the share of overseas revenue increased significantly. 24H1's overall gross margin was 29.6%, up 1.92pct from 27.68% in the same period last year. By business, the core products, fan filter units and filter products, achieved revenue of 0.66 billion yuan, accounting for 87.14%, and gross margin of 29.7%; by region, domestic and foreign revenue achieved 0.617/0.14 billion yuan respectively, accounting for 81.5% and 18.5% respectively, and the share of overseas revenue increased by 6.9 pcts over the same period last year. We judge the year-on-year increase in gross margin or mainly due to the increase in the share of high-margin consumables in the revenue structure. The company's filters have consumable properties, and the gross margin can reach 30-40%. Generally speaking, the replacement cycle for medium efficiency filters/high efficiency filters is 1-6 months and 1-8 years, respectively. As the company's market share continues to accumulate, stock replacement demand is expected to continue to increase, driving the company's overall business optimization.

Operating cash flow decreased due to an increase in orders, and the expense ratio remained stable during the period. 24H1's net operating cash flow was -85.89 million yuan, a year-on-year decrease of 346.3%, mainly due to increased orders, growth in the company's inventory reserves, and increased cash for purchasing goods and receiving labor payments. In terms of cost ratio, the company's cost rate for the period was 16.96%, yoy+0.48pct. Among them, sales/management/ financial/ R&D expenses were 6.34%/5.3%/0.57%/4.76%, respectively, and yoy-0.7/+1.28/-0.09pct, which remained the same.

Based on the domestic market, with semiconductors as the core, we actively expand downstream application fields and overseas markets. Over the years, the company has continued to expand its business scope with a good equipment base, and has achieved layout in four major fields: advanced semiconductor manufacturing processes, biological clean rooms and biosafety protection, commercial human settlements, and atmospheric emissions control. In terms of overseas expansion, the company has been actively exploring overseas markets represented by Southeast Asia in recent years, and has passed the certification of qualified suppliers from many famous international manufacturers. Entering the core supply chain, the products have obtained domestic and foreign certifications such as 3C, UL, FM, AHAM, CE, etc., laying a solid foundation for the company's global market expansion. The company's new overseas plant has now been put into production, and overseas production capacity will increase to RMB 0.2 billion, further supporting the company's overseas market development.

Investment advice and valuation: We expect the company to achieve revenue of 1.854/2.289/2.726 billion yuan in 2024-2026, up 23.2%, 23.5%, and 19.1% year on year; net profit to mother of 0.239/0.285/0.361 billion yuan, up 38.2%, 19.2%, and 26.5% year on year. Maintain a “buy” investment rating.

Risk warning: Risk of changes in raw material prices, risk of R&D returns falling short of expectations, downstream demand falling short of expected risk, production capacity expansion falling short of expected risk, overseas expansion falling short of expected risk.