Incident: The company released its 2024 semi-annual report, and the results slightly exceeded expectations.

1) 2024H1 achieved revenue of 4.068 billion yuan, +10.31% YoY; net profit to mother of 0.644 billion yuan, +4.47% YoY; net profit of 0.548 billion yuan, -9.50% YoY; 2) Corresponding Q2 revenue of 2.758 billion yuan, +22.55% YoY, +110.43% YoY; Net Profit of 0.381 billion yuan YoY, +44.57% YoY; net profit net of 0.381 billion yuan YoY; net profit minus net profit 0.355 billion yuan, -0.70% YoY, +83.77% month-on-month.

The profit of the submarine cable system remains steady, and land cable revenue has achieved relatively rapid growth.

1) 2024H1 submarine cable revenue was 1.485 billion yuan (37%), -10.34% year over year; gross profit margin was 39.38%, -11.71 pct year on year. Q2 revenue was 1.104 billion yuan, +0.70% year over year and +190% month over month.

The decline in gross margin in the first half of the year was mainly due to the delivery of high-margin products such as 500KV AC three-core submarine cables for the Qingzhou 1 and 2 projects in the same period last year; under normal circumstances, the company's gross profit margin for submarine cables was around 40%, which is still a high level in the industry.

2) 2024H1 land cable revenue was 2.294 billion yuan (56%), +25.91% year over year; gross profit margin was 9.94%, +1.18pct year on year. Q2 revenue was 1.556 billion yuan, +49.63% YoY, +111% month-on-month; gross profit margin was around 10%, which was a significant improvement over the same period last year.

3) 2024H1 offshore engineering revenue was 0.284 billion yuan (7%), +37.83% year over year; gross profit margin was 33.75%, +10.76pct year on year.

Ongoing orders are plentiful, and the share of international orders and revenue has increased significantly.

1) As of August 12, 2024, the company's on-hand orders were 8.905 billion yuan, including 2,949 billion yuan for submarine cable systems (about 1.96 billion yuan for 220KV and above submarine cable+umbilical cord cable, accounting for about 22% of total orders), 4.523 billion yuan for land cable systems, and 1.433 billion yuan for marine engineering; 2) In-hand orders were about 2.6 billion yuan for international orders, accounting for nearly 29% of the total number of orders in hand; the composition of international orders was mainly 1.8 billion submarine cable order for the Inch Cape project, 0.15 billion yuan submarine cable order from SSE in the UK;

3) 2024H1's overseas revenue was 0.688 billion yuan (17%), with a gross profit margin of 11.44%, and the gross margin of overseas business in 2023 was 37.49%. The sharp decline in overseas gross margin is expected to be due to higher shipping costs due to higher shipping prices.

The layout of the “3+1” industrial base is gradually becoming clear.

1) Domestic “3” industrial bases: At present, the company has built the eastern (Beilun) industrial base, the southern (Yangjiang) base is under construction, and the northern (Laizhou, Shandong) industrial base is being laid out; with the location of the company's northern industrial base determined this year, the company has achieved full coverage of the main domestic sea breeze market.

2) International “1” industrial base: Currently, the company is carrying out overseas industrial layout and investment matters in an orderly manner, and has completed investments in British XLCC and XLINKS companies; the company's international brand effect is expected to gradually increase.

Investment advice: Domestic and European ocean breezes are in strong demand, and the company's performance is expected to continue to grow. We maintain our previous profit forecast. We expect the company's revenue for 2024-2026 to be 9.632 billion yuan, 12.11 billion yuan, and 14.717 billion yuan, respectively, with year-on-year growth rates of +31.77%, +25.72%, and +21.52% respectively; net profit to mother is 1.351 billion yuan, 1.687 billion yuan, and 2.237 billion yuan respectively, with year-on-year growth rates of +35.11%, +24.87%, and +32.56% respectively ; EPS is 1.96/2.45/3.25 yuan respectively, and the current stock price is 24/19/14 times PE, respectively, maintaining a “buy” rating.

Risk warning: Haifeng construction progress falls short of expectations, worsening industry competition pattern, sharp fluctuations in raw material prices, etc.