Event: The company publishes its 2024 semi-annual report. 24H1 achieved revenue of 0.767 billion yuan, a year-on-year increase of 76.50%; realized net profit to mother of 20.67 million yuan, an increase of 62.21% year-on-year. 24Q2 achieved revenue of 0.41 billion yuan, a year-on-year increase of 55.16%; realized net profit of 6.8 million yuan, a year-on-year decrease of 7.65%; realized net profit of 4.31 million yuan after deduction, an increase of 2.81% over the previous year.

The gross margin may decline due to the structural impact of the product, and the scale effect drives the cost ratio to improve: in terms of 24H1 gross margin, the company's product public service law enforcement vessel accounted for the highest share of revenue. The gross margin decreased by 5.83 PCT over the same period last year, or due to structural changes in delivered products. However, the cost ratio for the four items of sales, management, R&D, and finance decreased by 5.50 PCT year-on-year, so the company's net profit still showed a good increase. In terms of cash flow from operating activities, the overall performance was a large net outflow due to the double impact of major contracts signed in early 2023 and entering the peak equipment procurement period in 2024, net cash outflows, and delays in receipt of payments for some projects due to the late payment of funds from the 2024 budget.

The green trend and subsidy policy in the shipping industry are conducive to the expansion of the company's NEV business: the new low-carbon regulations for international ships are constantly being upgraded, the carbon peak and carbon neutrality schedule and road map of the shipping industry are gradually clarified. Coupled with the continuous increase in domestic support policies, the NEV industry has ushered in excellent development opportunities. According to the “2023 Transportation Industry Development Statistics Bulletin” issued by the Ministry of Transport, at the end of 2023, the country had 0.1066 million inland waterway transport vessels, the vast majority of which used fuel engines as propulsion devices, and the NEV market has great potential for renewal. In August 2024, the Ministry of Transport and the Development and Reform Commission issued the “Implementation Rules on Scrap and Renewal Subsidies for Old Transport Vessels”, which will help to better implement the old operating ship scrapping and renewal subsidy policy and promote a new round of upgrading old operating vessels. The company laid out the new energy boat market early. The products cover various types of pure electricity, methanol fuel cell power, and hybrid power, which can meet the needs of various application scenarios, laying a good foundation for the company to seize greening opportunities in the shipping industry.

Additional production capacity has been added to the fund-raising project, providing a production capacity guarantee for subsequent development: the Marine Advanced Boat Intelligent Manufacturing Project (Zhongshan Second Factory) was completed and put into operation. The project was fully completed in December 2023, with a construction scale of more than 0.03 million square meters, 3 1000-ton outfitted berths, with a total berth length of 270 meters. The upper and lower rows of the project used a vertical lift with a maximum load of 2,000 tons. The completion of the fund-raising project will effectively improve the company's construction capacity and efficiency and meet the company's product upgrade requirements.

Profit forecasting, valuation and ratings: Although the company's gross margin has declined and cash flow has declined due to structural changes in product delivery, etc., the company's optimized cost control, business development trends, and updated demand brought about by the trend of ship greening make the company's performance expected to continue to grow well. The company's net profit for 2024-2026 is estimated to be 0.072/0.09/0.11 billion yuan, EPS is 0.19/0.24/0.29 yuan, respectively. The current stock price corresponds to PE of about 54/43/35X, respectively. Continue to be optimistic about the increase in business demand that ship upgrading may bring to the company, and maintain the “gain” rating.

Risk warning: risk of declining profitability due to lower order prices, risk of extended product delivery cycles, risk of rapid iteration of technology.