1H24 results are in line with market expectations

The company announced 1H24 results: revenue of 1.401 billion yuan, +6.4% YoY, net profit of 0.2 billion yuan YoY, +2.6% YoY net profit, 0.188 billion yuan, +2.7% YoY; 2Q24 revenue 0.758 billion yuan, +7.2% YoY, net profit to mother 0.115 billion yuan, +5.6% YoY, net profit of 0.102 billion yuan YoY, +2.7% YoY, in line with market expectations.

Domestic demand for explosion-proof has slowed, and export business is booming. 1H24's lighting business revenue fell 18% year on year to 0.095 billion yuan, EPC business revenue was 0.127 billion yuan, and revenue in the same period last year was less than 0.01 billion yuan.

1H24's explosion-proof business revenue declined slightly year-on-year. Among them, due to the contraction in downstream capital expenditure, mining explosion-proof and explosion-proof revenue for traditional domestic factories declined, while foreign trade revenue was 0.417 billion yuan, up 29% year on year, and overseas business grew faster than last year.

Profitability declined slightly and cash flow remained stable. Due to changes in business structure and price reductions for domestic explosion-proof products, 1H24's comprehensive gross margin decreased by 4.8ppt to 52.6% year on year, sales expenses decreased by 4.3ppt to 25.8% year on year, and net profit margin decreased by 0.5ppt to 14.3% year on year. 2Q24 The net cash inflow from operating activities of the company was 0.167 billion yuan, which is basically the same as the same period last year.

Development trends

The traditional domestic sector is declining, and emerging businesses continue to grow. Currently, domestic capital expenditure on oil and gas chemicals is shrinking, and the company's traditional oil and gas demand is declining. We believe that new applications such as liquor and specialty products are expected to continue to grow by double digits. At the same time, thanks to increased emphasis on hazardous chemical parks, demand for intelligent park transformation is expected to rise. We expect the company's intelligent safety and engineering business to usher in a new growth point in 2024.

Exports are growing at an accelerated pace. In 2023, the company's export business increased 12% year-on-year to 0.7 billion yuan. Currently, the company has sufficient overseas orders. We expect the overseas business growth rate to grow by more than 20% in 2024, and there is still plenty of room for future export business.

Profit forecasting and valuation

Considering changes in EPC's revenue caliber, the 2024 revenue was reduced by 10% to 3.8 billion yuan, and considering the increase in EPC profit margin due to sufficient EPC orders and component price differences, the 2024 deduction of non-net profit was increased by 5% to 0.496 billion yuan, and a non-net profit forecast of 0.566 billion yuan was introduced for 2025. The current stock price corresponds to 2024/2025 11.3x/9.9x P/E. We maintain a target price of 23.00 yuan, corresponding to 2024/2025 15x/13x P/E, with 33% upside, and maintain the industry rating.

risks

Capital expenditure on oil and gas chemicals is weakening; export growth falls short of expectations; tension in the overseas situation is increasing.