Incident: The company released its 2024 semi-annual report. 24H1 achieved revenue of 1.39 billion yuan, +21.2% year over year; realized net profit of 2.0 yuan, +20.2% year over year; single 24Q2 achieved revenue of 0.75 billion yuan, +46.5% year over year; realized net profit to mother 0.11 billion yuan, +25.9% year over year. 24H1's performance is in line with expectations, and emerging industries are being nurtured and expanded.

Fluctuations in raw material prices affect the company's overall gross profit margin, lean management, reduced expenses during the company period, and the net interest rate increased slightly. 2024H1, the company's comprehensive gross margin was 29.8%, -2.6pp. The increase in gross margin was mainly due to fluctuations in raw material prices; the net margin was 14.2%, -0.1pp; the period expense ratio was 13.1%, -1.6pp; among them, the sales, management, R&D and financial expense ratios were 4.0%, 3.7%, 4.3%, and 1.1%, respectively. The sales, management, R&D and financial expense ratios were -0.3pp, -0.7pp, -0.4pp, and -0.2pp, respectively. Looking at 2024Q2 alone, the company's gross margin was 29.0%, -6.4pp; the net margin was 14.4%, year-on-year -2.4pp; and the cost ratio for the period was 12.3%, -4.0pp. Among them, sales, management, R&D, and financial expense ratios were 4.2%, 3.3%, 4.0%, and 0.8%, respectively, while sales, management, R&D, and financial expense ratios were -0.8pp, -1.2pp, -1.7pp, and -0.4pp, respectively.

Implement differentiated competitive strategies and transform and upgrade traditional industries. Looking at the traditional main business, the company's breaker accessories business implements a differentiated competitive strategy, thoroughly understands customer needs according to the different attributes of the product, and continuously enhances the company's competitiveness by consolidating the market share of light and medium hydraulic breakers and strengthening the promotion of heavy hydraulic breaker products. In terms of hydraulic parts, the company is increasing the development of hydraulic parts for micro excavation, small excavation, medium excavation and large excavation hydraulic parts, hydraulic parts for aerial work platform vehicles, hydraulic parts for rotary drilling rigs, hydraulic parts for loaders, etc., to lay the foundation for a full range of hydraulic parts in the future. At present, domestic demand in the construction machinery industry is bottoming up, and the company's crushing industry is booming and the penetration rate of high-end hydraulic components is increasing, which is expected to continue to contribute to increased performance.

Emerging industries are being nurtured and expanded, and future growth and expansion can be expected. Judging from the revenue of emerging business subsidiaries nurtured by the company, 2024H1. The company's industrial robot (Ai Chuang robot) sector achieved revenue of 0.025 billion yuan, +45%; the hard alloy tool (Eddie Ruineng superhard tool) sector achieved revenue of 0.035 billion yuan, +13% year over year; the power battery (Yien New Power) sector achieved revenue of 0.16 billion yuan, +192% year over year. New business cultivation is progressing smoothly, and growth can be expected.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is expected to be 0.36, 0.49, and 0.64 billion yuan. The current stock price corresponds to PE at 34, 25, and 19 times, and the compound growth rate of net profit to mother over the next three years is 32%, maintaining a “holding” rating.

Risk warning: Risks such as downstream demand recovery falling short of expectations, fluctuating raw material prices, and falling short of expectations in new business expansion.