Event: The company publishes its 2024 semi-annual report. During the reporting period, revenue of 0.514 billion yuan was achieved, up 45.81% year on year; net profit to mother was 23.9823 million yuan, up 85.99% year on year; basic earnings per share were 0.19 yuan/share, up 90.00% year on year. In the second quarter, revenue of 0.366 billion yuan was achieved, +32.63% year-on-year; net profit to mother was 0.177 billion yuan, or +49.27% year-on-year. The increase in performance was mainly due to an increase in sales revenue from the main business, which was in line with expectations as a whole.

Energy-saving transformation has driven the growth of traditional business, and the low-temperature flue gas waste heat recovery business has increased. The company's traditional business includes slag removal equipment and low-temperature coal savers. It has significantly benefited from the new expansion of coal power and the energy saving and carbon reduction transformation of coal power, and the main business continues to grow rapidly. In June 2024, the total amount of basic investment completed in Thermal Power was 53.5 billion yuan, +36% over the same period last year.

In May 2024, the State Council issued the “2024-2025 Energy Conservation and Carbon Reduction Action Plan” to strengthen the clean and efficient use of coal, promote low-carbon transformation and construction of coal power, and promote the “three-reform linkage” of energy saving and carbon reduction transformation, flexibility transformation, and heating transformation. It is expected that the market demand for essential auxiliary equipment for coal power will increase dramatically. Benefiting from this, the company's 2024H1 low temperature flue gas waste heat recovery (low temperature coal saver) business increased. The single business achieved revenue of 0.216 billion yuan, a year-on-year increase of 157%. The revenue share of the single business increased from 23.76% in the same period last year to 42.02%, and the gross margin remained stable. The slag removal business achieved revenue of 0.22 billion yuan in the first half of 2024, an increase of 18.28% over the previous year. The traditional business continued to grow, supporting the company's overall performance to maintain a relatively rapid growth rate.

The full-load divestment business is slowing down, and the desulfurization wastewater business is contributing new volume. The company's emerging business layout includes sectors such as full load decommissioning, desulfurization wastewater, and steel slag treatment. Among them, the full-load denitrification business was affected by the release of demand and the pace of order confirmation. Overall business slowed down, achieving revenue of 0.041 billion in the first half of the year, a 43% year-on-year decline.

The desulfurization wastewater business achieved revenue of 0.021 billion yuan in the first half of the year. The business did not generate revenue in the same period last year, and it has already surpassed the annual revenue of 0.019 billion yuan in 2023, contributing a large increase in emerging businesses.

The company attaches importance to investment in R&D, and new businesses such as steel slag and hydrogen energy equipment have opened up new growth points. In the first half of 2024, the company invested 23.791 million yuan in R&D, an increase of 10.29% over the previous year, accounting for 4.6% of revenue. In 2023, the company landed its first order in the steel slag business, with a contract amount of 0.104 billion yuan and confirmed revenue of 0.092 billion yuan, indicating that the company has successfully opened up the steel slag treatment market and laid out energy-saving transformation in the non-electric industry. In addition, the company uses financial leasing to invest in the construction of a 120MW fishery and light complementary project to actively promote the company's technology research and development and manufacturing in the field of hydrogen energy equipment. As of June 30, 2024, the company has received a financial lease payment of 1.664 billion yuan. The project is being carried out normally according to the expected plan, which is conducive to further optimizing the strategic layout of the company's industry and laying a solid foundation for future business development and profit growth.

Investment advice. The company's auxiliary equipment performance has maintained a relatively rapid growth rate. As the leading segment of coal power auxiliary equipment, it directly benefits from the construction of coal power generation and energy-saving and carbon-reduction transformation, and the continuous release of market demand supports the continuous improvement of the company's profitability. We predict that the company's net profit for 2024-2026 will be 0.143/0.175/0.205 billion yuan respectively, corresponding EPS will be 1.16/1.42/1.67 yuan, and PE will be 9.7/8.0/6.8 times, respectively, maintaining a “buy” rating.

Risk warning: the installation speed falls short of expectations; the promotion of industry policies such as thermal power flexibility transformation and green power trading falls short of expectations; prices of upstream raw materials have risen.