Incident: The company released its 2024 mid-year report. In the first half of 2024, revenue was 1.158 billion yuan, a year-on-year decrease of 14.57%, and net profit to mother was 0.075 billion yuan, a year-on-year decrease of 16.47%.

Key points of investment

Overall operations were under pressure, and revenue decreased by 14.57% year on year: the company released its 2024 mid-year report, achieved revenue of 1.158 billion yuan in the first half of 2024, a decrease of 14.57% year on year, and realized net profit to mother of 0.075 billion yuan, a decrease of 16.47% year on year. The main reason is that in the first half of 2024, the company was affected by factors such as the market and plans, and the overall operation was under certain pressure. In the first half of 2024, the main business revenue was 1.133 billion yuan, down 15.51% year on year. Among them, revenue from electronic information products was 0.587 billion yuan, down 8.17% year on year; revenue from hydroacoustic electronic defense products was 0.321 billion yuan, down 21.82% year on year; revenue from special electronic products was 0.209 billion yuan, down 25.32% year on year; professional technical services and others were 0.015 billion yuan, up 44.49% year on year.

Additional equity capital raised, and 1.031 billion yuan will be invested in marine defense underwater warning and detection equipment research and industrialization projects: On April 27, 2024, the company will issue additional shares to raise capital, with a total planned investment of 2.019 billion yuan, for projects: marine defense underwater warning and detection equipment R&D and industrialization projects, marine information electronics and key components industrialization projects, intelligent equipment and digital workshop industrialization projects, hydroacoustic reconnaissance equipment industrialization projects, and industrial intelligent equipment industrialization projects. Among them, the marine defense underwater warning and detection equipment research and industrialization project plans to invest 1.031 billion yuan to develop underwater warning and detection equipment, raise the company's level of industrialization of underwater warning and detection equipment, enhance the company's scientific and technological research and development capabilities, innovate new products, and open up new markets.

The entire hydroacoustic electronics industry is expected to continue to benefit from strong demand in the downstream market: the company is a high-tech enterprise that is deeply involved in the field of electronic defense equipment, electronic information industry, professional technical services, etc., and carries out R&D and production in these fields to provide customers with relevant professional technical services. Among them, related products in the field of electronic defense equipment have the characteristics of high technology, high investment, and strong professionalism. The company currently has the only domestic research and production capacity in the field of electronic defense equipment in the field of hydroacoustics and electronics, as well as research and production capabilities in various industries such as underwater attack and defense, satellite navigation, special computers, motion control, and special power supplies. It also plays various roles in these fields, such as a system provider, complete equipment supplier, and supporting product provider, and also has the ability to supply various types of specially equipped electronic components. The company also has certain technical advantages and market positions in some strategic emerging industries, and some subsidiaries have industry leading advantages in their industries and fields.

Profit forecast and investment rating: The company's performance is in line with expectations. Considering that the industry is in the order adjustment period, we lowered the company's net profit forecast for 2024-2026 to 0.32/0.437/0.536 billion yuan, the previous value was 5.55/6.15/0.728 billion yuan, corresponding to PE 44/32/26 times, respectively. At the same time, considering that China's coastal defense is a branch system company in the ship sector, it can also enjoy the low competition of OEMs and the high profit margin of components. It is the leading underwater subsystem in China. Therefore, the “Overweight” rating is maintained.

Risk warning: 1) industry competition risk; 2) production and operation risk; 3) risk of financial cost growth.