Incident: The company released its 2024 semi-annual report. 2024H1 achieved operating income of 0.63 billion yuan, a year-on-year increase of 56.7%, and achieved net profit to mother of 0.084 billion yuan, an increase of 58.1% over the previous year. 2024Q2 achieved operating income of 0.38 billion yuan, a year-on-year increase of 63.8%, and realized net profit to mother of 0.045 billion yuan, a year-on-year decrease of 32.0%.

The company achieved rapid growth in the first half of the year.

The rubber wear-resistant spare parts business continues to grow, and there is plenty of room for replacement. By product, 2024H1, the company's mining rubber wear-resistant spare parts achieved revenue of 0.3 billion yuan, with a gross margin of 42.5% compared to +5.5pp. The company's self-developed rubber composite spare parts are superior to traditional metal spare parts in many aspects such as wear resistance, corrosion resistance, and environmental protection. Compared with traditional metal spare parts, they have a strong competitive advantage. Currently, the penetration rate of rubber wear-resistant spare parts in the mining process is less than 15%, and there is plenty of room for replacement. The mineral processing system solution and service achieved revenue of 0.2 billion yuan, +1294.6% year over year, gross margin of 26.0%, +20.8pp year over year, mainly from revenue recognition of the Erdente EPC project. Mining metal spare parts achieved revenue of 0.06 billion yuan, +58.4% year over year, gross margin of 25.7%, +1.3pp year on year. Mineral processing equipment achieved revenue of 0.05 billion yuan, -27.1% year over year, gross margin of 32.4%, +9.8pp year on year.

The gross margin has increased significantly, and the ability to control expenses is good. 2024H1's gross profit margin and net margin were 35.0% and 13.5% respectively, compared with +2.6 pp and -0.2 pp. The increase in gross margin was mainly due to the smooth expansion of overseas markets, which led to a significant increase in revenue from high-margin rubber wear-resistant spare parts. 2024H1, the company's expense ratio for the period was 17.4%, -0.6pp. Among them, sales/management/R&D/finance expenses ratios were -1.2/-4.2/-1.1/+5.9pp, respectively. The increase in the financial expense ratio was clearly mainly affected by exchange rate fluctuations.

The international layout continues to advance, and overseas production capacity is on the eve of release. 2024H1, the company's overseas business achieved revenue of 0.43 billion yuan, +153.3% year-on-year, and the global strategy achieved remarkable results. The company's production base in Zambia will be put into operation in the second half of 2024. Construction of the Chilean base has also begun, and bases in Serbia and Peru are also being planned. After completion, the overseas project will form a global strategic layout with production and service centers in Asia, Africa, Europe, and South America, and go overseas to open up a ceiling of growth.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 0.15, 0.21, and 0.27 billion yuan, respectively, and the corresponding EPS is 1.01, 1.35, and 1.77 yuan, respectively. Corresponding to the current share price PE is 21, 15, and 12 times, respectively. The compound net profit growth rate for the next three years will be 50%. The company's overseas layout is progressing steadily. The dominant product, rubber wear-resistant spare parts, replaced the trend of traditional metal spare parts. The company was given 25 times the target PE in 2024, corresponding to the target price of 25.25 yuan, covering the first time, and giving it a “buy” rating.

Risk warning: Overseas market expansion falls short of expectations, increased industry competition, and exchange rate fluctuations.