The first half of the year's performance grew steadily, and new orders remained high. Domestic and foreign demand is expected to continue to drive the company 2024H1 to achieve revenue of 3.744 billion yuan, up 4.19% year on year; net profit to mother of 0.362 billion yuan, up 2.70% year on year; net profit after deducting non-return to mother 0.314 billion yuan, up 5.60% year on year. In the first half of the year, the instrument industry's revenue increased 2.6% year on year, total profit was basically the same year on year, and the company's performance was superior to that of the industry. Looking at Q2 alone, the company achieved revenue of 2.177 billion yuan, an increase of 7.04% year on year; net profit to mother was 0.214 billion yuan, up 0.23% year on year; net profit after deducting non-return to mother was 0.192 billion yuan, up 10.03% year on year; and the growth rate of net profit without return to mother increased further in the second quarter. The company's new orders remained flat year-on-year, maintaining a relatively high level. The increase in China's oil and gas, equipment manufacturing, nuclear power, etc., and overseas markets contributed significantly. We maintain our profit forecast. We expect the company's net profit to be 0.835/0.94/1.08 billion yuan in 2024-2026, EPS is 1.63/1.83/2.10 yuan, and the current stock price is 9.9/8.8/7.6 times, maintaining a “buy” rating.

Rising raw material costs put pressure on profitability in the short term. Measures to improve quality and efficiency increase profitability The company's 2024H1 gross profit margin was 32.39%, down 1.59pcts year on year, mainly due to rising material costs; sales, management, R&D, and financial expenses were 11.94%, 5.21%, 7.05%, and -0.59%, respectively, -0.75pcts, -0.45pcts, +0.03pcts, -0.35pcts; net profit margin 9.70%, down 0.18pcts year on year, mainly due to cost reduction and efficiency results This was partly due to the impact of the decline in gross margin. Looking at Q2 alone, the company's gross profit margin was 31.66%, down 1.58pcts year-on-year.

Decreased 1.74 pcts month-on-month; net profit margin 9.84%, down 0.71 pcts year over year; increased 0.36 pcts month-on-month. The company continues to reduce costs and increase efficiency. 2024H1 has added 2 new intelligent production lines, and profit flexibility is expected to increase.

The product matrix continues to expand, which is expected to benefit from downstream equipment updates and domestic replacement; overseas gradual release companies continue to expand their product matrices, and the small to medium caliber series Corian mass flow meters have reached batch supply capacity; intelligent actuators are speeding up the completion of segmented product gaps, which are expected to benefit from downstream renewal requirements released by equipment renewal policies. Focusing on the nuclear power market, the company successfully delivered nuclear power steam engine bypass control valves to accelerate the development and certification of nuclear power products, and is expected to continue to benefit from the nuclear power boom. The company replaced domestic products in the next city, supplied low-noise ball valves in batches and achieved localized application at Dushanzi Petrochemical, and there is broad space for domestic replacement. The company is actively expanding overseas markets. New overseas orders for 2024H1 increased by 86% year on year, and overseas markets are expected to continue to contribute to the increase.

Risk warning: Equipment updates fall short of expectations; domestic substitution falls short of expectations; product expansion falls short of expectations.