Incident: The company announced its 2024 semi-annual report, achieving revenue of 0.676 billion yuan, an increase of 9.64% year on year; net profit to mother 0.039 billion yuan, up 14.59% year on year; 0.036 billion yuan after deduction, an increase of 7.86% year on year.

Depreciation dragged down performance, and traditional main business profits achieved steady growth. According to the company's semi-annual report, the 2024H1 instrument business achieved revenue of 0.673 billion yuan, a year-on-year increase of 10.19%; gross margin was 34.76%, an increase of 5.37 percentage points over the same period last year. Among them, Yuanchuan gas meters achieved revenue of 0.38 billion yuan, an increase of 3.69% year on year; gross margin was 33.87%, up 7.67 percentage points from the same period last year; electronic gas meters achieved revenue of 0.244 billion yuan, an increase of 27.41% year on year; and gross margin was 38.03%, up 2.89 percentage points from the same period last year. It is worth focusing on the fact that 2024H1's asset impairment loss was 0.029 billion yuan, accounting for 51.09% of the total profit, mainly due to impairment of long-term equity investment (Jiangxi Saiku New Materials, engaged in lithium salt business); credit impairment losses were 0.019 billion yuan, accounting for 32.50% of the total profit, mainly due to loss of accrued accounts receivable. If losses caused by the lithium salt business are recovered, then the company's traditional instrument business will achieve steady profit growth in the first half of the year.

Industry development: new infrastructure construction+digital gas+digital water, broad space. 1) Urban village renovation helps increase downstream demand for terminal equipment; 2) Accelerated promotion of urban infrastructure lifeline safety projects to facilitate the development of digital gas and digital water services; 3) Renovation of old neighborhoods and mandatory periodic gas meter renewal and replacement to usher in new growth space for gas instruments; 4) Curb the frequent occurrence of gas safety accidents, release special urban gas safety remediation plans in many places, and “bottle conversion” is beneficial to the company's performance growth; 5) The release of favorable policies for digital water services has ushered in an opportunity period for rapid development; 6) Double wheel drive with incremental inventory, the penetration rate of smart water meters is expected to increase improve.

Profit forecast: In terms of the competitive landscape, on the demand side, the downstream gas meter is mainly gas operators, with concentrated downstream and strong voice; on the supply side, the competitive landscape of the industry is scattered, and channel competition is becoming more and more intense; as a leading smart gas meter and system service provider that has been deeply involved in the industry for 20 years, we expect the company's 2024-2026 EPS to be 0.53, 0.64, and 0.79 yuan respectively, and PE will be 17, 14, and 12 times PE, respectively, giving the company 22 times PE in 2024, maintaining the company's “buy” rating.

Risk warning: Product prices and gross margin continue to decline due to declining industry demand and increased competition.