Incident: The company released its 2024 semi-annual report. In the first half of the year, the company achieved revenue of 0.713 billion yuan, a year-on-year decrease of 10.63%; achieved net profit to mother of 0.074 billion yuan, a year-on-year decrease of 63.11%; and achieved a gross profit margin of 20.97%, a year-on-year decrease of 14.52 pcts.

Among them, Q2 achieved revenue of 0.458 billion yuan, a year-on-year increase of 26.84%; achieved net profit to mother of 0.045 billion yuan, a year-on-year decrease of 55.45%; and achieved gross profit margin of 19.33%, a year-on-month decrease of 17.41/4.58 pct, respectively.

Revenue for the second quarter improved year on year, and the casting business dragged down short-term results. With the launch of downstream wind power installations and the contrarian growth in the industrial casting and forging business, the company's product shipments increased rapidly. The company broke through the industry in the second quarter, and revenue in the forging spindle sector reached a doubling upward trend. The product revenue contribution of casting spindles increased by more than 400% in the second quarter compared to the first quarter. At the same time, other precision shaft products achieved sales revenue of 0.163 billion yuan in the first half of the year, an increase of 40.12% over the previous year. However, the main reason for the decline in net profit and gross margin is that the newly expanded casting capacity is still climbing, dragging down short-term performance. Jinlei Heavy Equipment (castings) lost 58 million in the first half of the year. With the recovery in offshore and overseas casting demand and the improvement of production line efficiency, the company's castings are expected to be profitable.

Large megawatt casting products have been developed smoothly, and good customer links have been established. The company has created good customer links in the foundry field with customers such as global high-end machine manufacturers Siemens Gamesa, Envision Energy, Dongfang Electric, Mingyang and Goldwind Technology. Jinlei Heavy Equipment, a wholly-owned subsidiary, has successfully won the bid for Shanghai Electric's four major wind power V7 components, Siemens Gamesa SG14 shaft system, Dongfang Electric's 18MW shaft system and 20MW mainframe, and Dongfang Electric's 18MW shaft system and 20MW orders have completed the delivery of some products. This is the first time in the industry that large megawatt wind power castings have been developed.

Lower the profit forecast and maintain the “purchase” rating: The company is the leading global wind power spindle. The company's new casting products mainly target large offshore megawatt fan models. The competitive pattern and price of offshore castings are clearly different. The domestic offshore wind power construction progress in the first half of 2024 fell short of expectations, which affected the company's short-term profit to a certain extent. Based on this, we lowered the company's 24-26 profit forecast. The net profit for 24-26 is expected to be 0.357 billion yuan, 0.599 billion yuan, and 0.79 billion yuan respectively (the original value was 0.554/0.703/0.877 billion yuan), corresponding EPS is 1.11, 1.87, and 2.47 yuan/share, respectively. The corresponding valuations are 14 times, 9 times, and 7 times. Referring to the average valuation level of comparable companies, the company was given a 24-year 21xPE valuation to maintain a “buy” rating.

Risk warning: The installed volume of wind power falls short of expectations, the unit price and sales volume of casting products fall short of expectations, and the price of raw materials has risen.