The company's revenue increased steadily in the first half of the year, and profits grew rapidly after excluding the impact of GDR, mainly benefiting from improvements in gross margin and operating efficiency. Traditional control systems and the main petrochemical and chemical circuits are growing steadily, and overseas business is developing rapidly. At the same time, it is actively investing in global industries. There are many business highlights, and it remains highly recommended.

Incident: The company released its 2024 interim report, and achieved revenue of 4.252 billion yuan, YoY +16.78% in the first half of the year; net profit to mother of 0.517 billion yuan, YoY +1.16%; deducted non-net profit of 0.472 billion yuan, YoY +11.41%. 24Q2 single quarter revenue, net profit attributable to mother and net profit after deducting non-net profit YoY +14.49%/-11.26%/-0.80%. At the same time, the company announced the 2024 restricted stock incentive plan (draft), which plans to award 2.945 million shares (about 0.37% of the total share capital) to 63 people at a price of 21.53. The performance evaluation target is based on net profit due to the mother in 2023, and the net profit growth rate for 2024-2025 will not be less than 20%/40%/60% (excluding the effects of exchange gains and loss, share payment fees, etc.).

Revenue was in line with expectations, and profit grew rapidly after excluding the impact of GDR. The company's GDR capital exchange loss amount in the first half of the year was 2.8417 million yuan. The amount of GDR capital exchange earnings for the same period last year was 0.164 billion yuan. After excluding GDR capital exchange profit and loss, net profit to mother was 0.519 billion yuan, YoY +49.80%.

The comprehensive gross margin increased slightly, and the three-rate rate dropped sharply. The gross profit margin of sales in the first half of the year was 33.23%, up about 0.75pct year on year. The sales, management, and R&D expenses rate for the first half of the year was 8.11%/4.48%/10.45%, down 1.20/1.12/0.72 pct year on year, and the total three rates fell 3.03 pct year on year. By the end of June, the total number of employees in the company was about 5,808, a year-on-year decrease of about 797, and a decrease of about 665 compared to the beginning of the year; 2,242 R&D personnel, accounting for an increase of 4.05 pct to 38.60% year on year, and the personnel structure was optimized.

The traditional control system business and the main petrochemical and chemical tracks are growing steadily. Control system revenue in the first half of the year was 1.725 billion yuan, YoY +17.65%: industrial software revenue was 1.11 billion yuan, YoY +3.23%, and growth slowed significantly. We think it is mainly related to the company's promotion of the software subscription system transformation. In June, the company and Shanghai Huayi successfully signed the first subscription one million premium membership, and the subscription membership model was officially implemented: instrument revenue was 0.353 billion yuan, YoY +72.18%. The synergy effect with Hobre was gradually reflected. By industry, petrochemical, chemical, oil and gas, pharmaceutical food revenue YoY +26.95%/26.03%/117.32%/29.23%. The main track increased steadily, and demand from other industries fluctuated in stages.

Overseas business is developing rapidly, and global industrial investment is being actively deployed. In the first half of the year, the company's overseas business achieved revenue of 0.343 billion yuan, YoY +188.22%; signed new overseas contracts of 0.5 billion yuan, YoY +63.82%. The Saudi Aramco business, which the market is paying more attention to, continues to achieve breakthroughs. Following the cooperation with the intelligent inspection robot Aramcobot, the company also successfully obtained CentralWarehouse's AMR intelligent robot project, and cooperation with major benchmark customers is getting closer. Furthermore, the company's foreign investment increased dramatically in the first half of the year, with total investment in the private equity fund SkylineAutomationTechnologiesL.P., amounting to 0.1 billion US dollars, reflecting the company's positive intention to invest in global industries.

Maintain a “Highly Recommended” investment rating. The company is expected to have 24-26 revenue of 10.2/12.5/15 billion yuan and net profit of 1.205/1.494/1.803 billion yuan to the mother, maintaining a “highly recommended” investment rating.

Risk warning: Overseas market expansion and investment policy risks; new industries and product development fall short of expectations.