Incident: The company released its 2024 semi-annual report, and achieved revenue of 0.59 billion yuan in the first half of 2024, up 26.4% year on year; net profit to mother was 0.06 billion yuan, up 24.0% year on year. Revenue for the second quarter was 0.33 billion yuan, up 21.2% year on year and 24.3% month on month. Net profit to mother was 0.03 billion yuan, up 39.1% year on year, down -0.4% month on month. Performance improved steadily, and profitability continued to improve.

The share of overseas revenue continues to rise, and gross margin remains high. The company's comprehensive gross profit margin in the first half of the year was 30.9%, an increase of 7.0 percentage points over the previous year, mainly due to the increase in the company's share of export revenue. The company's overseas revenue in the first half of the year was 0.4 billion (less than 4 million for the full year of 2023), accounting for 67.8% of export revenue, and the international market expanded smoothly. The net interest rate for the first half of the year was 10.3%, down 0.1 percentage points from the previous year, mainly due to increased financial expenses and credit impairment losses.

Due to the amortization of interest on convertible bonds, the expense ratio increased during the period. The company's expense ratio for the first half of 2024 was 15.4%, an increase of 2.7 percentage points over the previous year, mainly due to the increase in financial expenses due to amortization of convertible bond expenses. Among them, sales, management, R&D, and financial expenses were -0.3, +0.1, -0.2, and +3.1 percentage points year over year, respectively. Apart from financial expenses, the other three expense rates remained the same year over year.

Overseas markets are expanding smoothly, and on-hand orders have repeatedly reached new highs. Since 2023, the company has followed the simultaneous progress of going overseas. In 2023, the company successfully won the bid for Baowu Group's Ximandu iron ore project with a bid amount of 1.28 billion yuan; in June 2024, it won the bid for the Western Cement Uganda project, which is expected to achieve revenue of 0.11 billion yuan, and the pace of overseas expansion is smooth. Currently, the company has sufficient orders in hand to meet its operating needs for the next 1-2 years. Overseas orders account for more than 60%, and the high-gross margin export business is expected to drive the company's profitability to continue to increase.

Production capacity is gradually being released, and performance is expected to usher in rapid growth. Since its IPO, the company has continued to be affected by insufficient production capacity. The capacity utilization rate from 2021 to 2023 was above 110%, and some outsourcing is required to meet daily operations.

At the beginning of 2024, the company's IPO fundraising project was put into operation at the Tangshan Caofeidian base, releasing an additional 0.02 million meters from the original 0.09 million meter production capacity. Production capacity restrictions were relaxed, and the performance growth rate increased in the first half of the year. With the gradual commissioning of the Zigong base in the second half of the year, production capacity of 0.07 million meters will continue to be released. The bottleneck has been broken, and the performance is expected to usher in a period of rapid growth.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 0.19, 0.29, and 0.42 billion yuan, respectively, and the corresponding EPS is 1.2, 1.8, and 2.59 yuan respectively. The compound net profit growth rate for the next three years will be 59.5%.

The company's global layout is accelerating, and it is expected to benefit from increased demand in overseas markets. The company will be given a 25-fold valuation in 2024, corresponding to a target price of 30.0 yuan, and raised to a “buy” rating.

Risk warning: risk of raw material price fluctuations; risk of overseas market expansion falling short of expectations; risk of exchange rate changes.