Incident: The company released its 2024 semi-annual report, and achieved operating income of 1.788 billion yuan in the first half of 2024, a year-on-year decrease of 25.40%; net profit to mother 0.422 billion yuan, up 44.71% year on year; net profit after deducting non-return to mother 0.153 billion yuan, a decrease of 40.67% year on year; 2024Q2 achieved operating income of 1.09 billion yuan, a decrease of 17.65% year on year; net profit to mother of 0.335 billion yuan, up 109.45 year on year %, up 285.60% month-on-month.

Due to weak demand in the 24H1 industry, the company's shipments were slow, and profitability was also under pressure. Domestic wind power construction was slow in the first half of 2024, causing sales of the company's main products to decline. Ductile iron products achieved operating income of 1.7 billion yuan, a year-on-year decrease of 27.03%, and gross margin of 19.28%. Against the backdrop of fan prices continuing to be low, the profit margin of the wind power industry chain continues to be squeezed. 24H1's gross margin was under pressure, down 2.43 pcts to 19.14% year on year; net interest rate to mother rose 11.43 pcts year on year to 23.58%, mainly due to the disposal of Sun Company's equity confirmed investment income of about 0.273 billion yuan.

Foundry and finishing capacity construction are progressing simultaneously, and it is expected to benefit from the acceleration of wind power construction in the second half of the year. The company is steadily advancing various production capacity improvements. By the end of June 2024, the company had formed an annual casting capacity of 0.7 million tons and a finishing capacity of 320,000 tons; at the same time, the “large-scale casting finishing project with an annual output of 0.22 million tons” has entered the large-scale construction period. After production is put into operation, the company will form a finishing capacity scale of 0.54 million tons, and gradually build an “integrated delivery” industry chain to increase profits in the processing process. As the second half of the year enters the peak wind power construction season, the company is expected to fully benefit from sufficient production capacity.

Actively expand the nuclear power and alloy steel business to open up room for performance growth. The company actively lays out the fields of nuclear power equipment and alloy steel through penetrating thick and large section technology of ductile iron. In terms of nuclear power, the company continues to develop nuclear power spent fuel transfer and storage tanks, and already has batch manufacturing capabilities. In terms of alloy steel, the company has entered the high-end alloy steel market and is actively expanding the development of large-scale die-casting machines, ships, and special-material pumps for new energy vehicles that require cast iron and cast steel. 24H1's alloy steel business achieved revenue of 0.032 billion yuan, a year-on-year increase of 80.42%, gross margin of 14.10%, and there is plenty of room for future growth.

Maintaining a “buy” rating: As the second half of the year enters the peak wind power construction season, the company is expected to fully benefit. We maintain the original profit forecast. We expect the company to achieve net profit of 0.647/0.812/0.937 billion yuan in 24-26, corresponding EPS of 0.63/0.79/0.91 yuan respectively, and the current stock price corresponding to 24-26 PE is 17/13/11 times, respectively.

As a leader in wind power casting, the company's performance is expected to return to a growth trajectory against the backdrop of a boom in domestic wind power installations. At the same time, expanding new business is expected to further drive performance growth and maintain a “buy” rating.

Risk warning: Wind power installations fall short of expectations, risk of raw material price fluctuations, and new business expansion falling short of expectations.