Event: The company publishes its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 1.052 billion yuan, +5.28% year-on-year; realized net profit attributable to mother/net profit of 0.144/0.127 billion yuan, or +14.53%/+9.07% year-on-year.

Changes in the 2024H1 business structure have increased profitability, and sufficient on-hand orders will help future growth.

In the first half of 2024, the company's net profit to mother was +14.53%. The consolidated gross margin and net profit margin were +1.10pct/+1.07pct, respectively. The increase in gross margin was mainly affected by performance restructuring. In the first half of 2024, the metallurgy/nuclear power/energy/energy saving service business achieved revenue of 2.21/0.354/0.225/0.188 billion yuan, +31.91%/+1.08%/-34.14%/+117.53% year-on-year, accounting for +4.25pct/-1.40pct/-12.8pct/+9.20pct, with gross margins of 26.02%/38.51%/13.93%/36.59%, year-on-year -5.42pct/- 3.96pct/+2.05pct/+0.64pct. The share of high-margin energy-saving service businesses increased, and the share of low-margin energy businesses declined, driving the overall gross margin increase. In the first half of 2024, the company obtained additional orders of 1.208 billion yuan, of which nuclear power/metallurgy/energy equipment/Wuxi Flang/Ruifan Energy Saving was 5.04/1.96/0.089/0.405/0.014 billion yuan respectively, +92.37%/-2.00%/-30.47%/+3.32%/-22.22%. The company had sufficient orders in hand, and the nuclear power business accelerated development.

The new normal of approval of 10 nuclear power units continues, and the boom in nuclear power is driving development. On August 19, the National Standing Committee approved 5 nuclear power projects with a total of 11 units, including 1 high-temperature air-cooled reactor and 10 third-generation nuclear power units. This is the first time in recent years that the National Assembly has approved 11 units, continuing the new normal of approving 10 nuclear power units every year. At the same time, it is expected that starting 2024, domestic nuclear power production is expected to accelerate, thus driving demand for nuclear power equipment and components. Nuclear power valves are widely used in nuclear islands, conventional islands, and power plant auxiliary facility systems, and their value accounts for about 5% of the investment in third-generation units. Since 2008, the company has become the main supplier of nuclear power valves in China. Up to now, more than 0.15 million units of various nuclear power valve products have been used online, and the design and manufacturing license for first-class nuclear valves “isolation valves and stop valves” was increased in July 2023. Furthermore, the company's subsidiary, Wuxi Flange, is the main supplier of first-class nuclear flanges and forgings in the domestic nuclear power plant construction process, and is expected to continue to benefit during this nuclear power boom cycle.

Profit forecast: Maintain the company's “buy” rating. We expect the company to achieve operating income of 2.338/2.709/3.115 billion yuan in 2024-2026 and achieve net profit of 0.316/0.381/0.454 billion yuan, corresponding PE of 16.37x/13.56x/11.38x, respectively.

Risk warning: Nuclear power business investment and construction progress falls short of expectations, metallurgy/energy industry demand falls short of expectations, industry competition continues to intensify, raw material prices have risen sharply, profit forecasts and valuation models fall short of expectations, etc.