Incidents. Xianheng International announced semi-annual results. 2024H1 achieved revenue/net profit attributable to mother/net profit of 1.184/0.043/0.041 billion yuan, +18.26%/+25.07%/-6.09% YoY; 24Q2 realized revenue/net profit to mother/ net profit excluding net profit of 0.746/0.034/0.033 billion yuan, +18.79%/+60.01%/-1.29% YoY.

Continue to deeply cultivate the power industry, and rapidly cover new fields to achieve steady revenue growth. 2024H1's revenue was 1.184 billion yuan, +18.26% YoY. By industry: Companies in the power grid sector cooperated with the upgrading and construction of the Internet of Things in the power grid, and companies in the emerging field quickly entered the power generation industry to achieve coverage of the three major power generation groups. The 2024H1 power industry/other industries had revenue of 0.688/0.491 billion yuan, accounting for 58.09%/41.51% respectively, an increase of 23.8%/10.45%. By product: The revenue performance of tool products was impressive. 24H1 tools/instruments/technical services revenue was +27.14%/+4.81%/-17.43% year-on-year to 0.827/0.297/0.055 billion yuan, accounting for 69.82%/25.1%/4.65% respectively.

The increase in the share of non-standard products drove a month-on-month increase in gross margin, and cost reduction and efficiency further enhanced the company's profitability.

24H1 net profit to mother/net profit after deduction was 0.043/0.041 billion yuan, +25.07%/-6.09% YoY.

The gross margin/net margin of the 2024H1 company was 28.31%/3.7%, -4.23/+0.1pct year over year; by product:

The gross margin of 24H1 tools/instruments/technical services was 24.4%/33.74%/57.28%, respectively, -4.67/-1.08/+0.93pct, and the gross margin of the power transmission and distribution industry/other industries was 31.98%/23.15%, respectively. The main reason was that the company entered the new industry sector and standardized products accounted for a relatively high proportion of standardized products in the sales structure, causing its gross margin level to drop by a certain margin compared to traditional power grids. In the 2024 single Q2, the company's gross margin/net margin was 2.35/+1.18pct to 29.23%/4.81% year on month, up 2.48/2.99pct from month to month. The increase in the share of non-standard products in emerging industries drove the increase in gross margin, and the increase in net interest rate from month to month reflects the company's operating and management capabilities. The 24Q2 sales/management/finance/R&D expense ratio was 10.25%/9.74%/1.55%/-0.27%, compared to -1.24/-0.99/+0.39/+0.18pct, and the company's cost reduction and efficiency rate continued to decrease. The net cash flow from 24H1 operating activities was -87.25% to -0.218 billion yuan year-on-year, mainly due to a significant increase in cash from purchasing goods and receiving labor payments over the same period last year.

Investment advice: The company continues to be deeply involved in the power grid field, expand horizontally and adopt the “Four Legions” strategy. At the same time, taking advantage of online procurement by central enterprises, the country's central enterprises are expected to increase steadily in revenue. In the future, as the company deepens its understanding of new fields of expansion, the proportion of non-standard products will drive an increase in gross margin. In addition, the company is speeding up the pace of advancement in the field of robotics and creating an image as a service provider for high-tech products. The net profit for 24-26 is estimated to be 0.21/0.29/0.37 billion yuan, respectively. The corresponding PE is 19X/14X/11X, maintaining the “recommended” rating.

Risk warning: The increase in online penetration falls short of expectations; the risk of government procurement spending being reduced.