Event: The company released its semi-annual report for 2012. In the first half of 2024, the company achieved operating income of 4.957 billion yuan, -8.54%; realized net profit attributable to mother/net profit of 1.088/0.919 billion yuan, +4.33%/-9.63% year-on-year; and net cash flow from operating activities was 1.061 billion yuan, +307.74% year-on-year.

The overall profitability of 2024H1 is stable, and on-hand orders remain plentiful. 1) 2024H1's revenue was -8.54% year-on-year, mainly due to the fact that there were few orders that could be executed for oil and gas engineering services. Large orders were executed for oil and gas engineering services during the same period last year, confirming that revenue declined a lot year over year. 2024H1 oilfield engineering and equipment revenue was -36.86% year-on-year. 2) 2024H1's gross margin/net profit margin was 35.83%/21.95%, respectively, +0.15pct/+2.70pct, respectively. Among them, the gross margin of oilfield services and equipment/oilfield engineering and equipment was -1.25pct/+2.46pct, respectively, and overall profitability remained stable.

3) The 2024H1 company's cost rate for the period was 12.21%, +3.04pct year on year, of which the R&D cost rate was +0.85pct year on year. The company continued to strengthen R&D and innovation work and continued to strengthen market competitiveness; the 2024H1 financial expense ratio was +1.25pct year over year, mainly due to the high exchange income generated by foreign currency monetary projects in the same period last year. 4) 2024H1 received 7.179 billion yuan in new orders, +18.92% year over year. By the end of June 2024, stock orders were 9.191 billion yuan, and there were plenty of orders in hand.

Continue to advance the global development strategy and deepen the global layout. 2024H1 achieved revenue of 2.381 billion yuan in overseas markets, accounting for 48.04%. With changes in overseas sales product structure, overseas market gross margin was +1.25pct year-on-year. 1) In March 2024, the board of directors deliberated and approved a capital increase of 0.12 billion US dollars for the Middle East subsidiary to build a high-end oil and gas equipment manufacturing base in the Dubai Jebel Ali Free Trade Zone, covering the Middle East, North Africa and Southeast Asia. 2) In May 2024, the company signed a preliminary development and production contract with the Central Iraqi Petroleum Company and other relevant partners for the Mansouriya project to jointly develop the Mansouriya gas field. 3) 2024H1 successfully won a major natural gas project order from a strategic customer in Central Asia, making it the company's single largest equipment order; it successfully completed the delivery of the first Chinese electric drive fracturing equipment in North America and applied it on the well site. It was favored by old customers again in July, and won new orders for electric drive fracturing equipment from customers.

Profit forecast: First coverage, giving the company an “gain” rating. In 2024-2026, we expect the company to achieve operating income of 14.617/16.613/18.558 billion yuan and net profit to mother of 2.749/3.181/3.605 billion yuan, corresponding PE of 10.94x/9.46x/8.35x.

Risk warning: Domestic and foreign macroeconomic fluctuations exceed expectations, oil and gas prices fluctuate sharply, oil and gas capital expenditure falls short of expectations, market competition intensifies, overseas policy risks, profit forecasts and valuation models fall short of expectations