Incident: The company released its 2024 semi-annual report. H1 achieved operating income of 0.157 billion yuan, +74.35% year over year; net profit to mother of 0.025 billion yuan, +196.76% year over year. The gross profit margin was 74.82%, -0.82pct year over year. Single Q2 revenue was 0.099 billion yuan, YoY +90.67%, net profit to mother 0.024 billion yuan, +181.23% YoY; gross margin 72.60%, YoY -3.49 pct. The R&D expense rate/management cost rate/sales expense ratio were 33.81%/21.59%/11.25%, respectively. R&D costs/management costs/sales expenses were +17.50%/+14.92%/+74.26%, respectively. The year-on-year increase in sales expenses was mainly due to an increase in labor costs and after-sales service fees.

The industry's prosperity continued to rise, and the company's three main business revenues increased dramatically year-on-year. 2024H1 achieved revenue of 0.157 billion yuan, a year-on-year increase of 74.35%. The main reason was that the company's various products achieved a significant increase in sales revenue due to the continuous increase in industry sentiment and line opening plans. In terms of revenue by product, 2024H1's transponder system products achieved sales revenue of 0.081 billion yuan, with a gross profit margin of 66.99%, year-on-year -5.46pct, mainly due to increased line openings for application company transponder system products in the current period; locomotive signal CPU component products achieved sales revenue of 0.062 billion yuan, +88.31%, gross profit margin of 87.49%, year-on-year; rail circuit reader products achieved sales revenue of 9.4547 Million yuan, an increase of 100.65% over the same period last year, with a gross profit margin of 63.72%, +7.42pct year over year, mainly due to the industry maintaining a high level of prosperity and increased downstream demand.

Looking at revenue by industry, H1 railway, ship, aerospace and other transportation equipment manufacturing/technology promotion and application services/other industries achieved revenue of 0.119/0.018/0.02 billion yuan respectively, +64.34%/+212.86%/67.98% compared with the same period last year. In the railway industry, the company has benefited from the recovery of railway investment and large-scale equipment upgrades with two-wheel drive; the increase in business in the urban rail sector comes from the construction of new lines and the upgrading of some rail transit lines built in the early stages.

The LKJ train control field is further advanced, and the company has completed obtaining a CRCC trial certificate for LKJ-15. While continuously improving the competitiveness of the LKJ2000, the company has increased its efforts to promote the R&D of the next-generation LKJ-15. It has obtained a CRCC trial certificate for the LKJ-15. At the same time, it is actively promoting research on key technologies for autonomous freight trains (LATO) and the development of train control systems for general speed railways, and has achieved the expected results.

Profit forecast: The company's main business is transponder systems, locomotive signal CPU components, and rail circuit readers to develop the LKJ train control field. The company is expected to achieve net profit of 0.139/0.19/0.226 billion yuan in 2024/2025/2026. First coverage, giving a “buy” rating.

Risk warning: Industry development, company business progress, profit forecasts and valuations fall short of expectations.