The company announced its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 1.305 billion yuan, up 13.49% year on year, and achieved net profit of 0.111 billion yuan, up 27.28% year on year. Looking at the single quarter, the company achieved revenue of 0.81 billion yuan in the second quarter of 2024, an increase of 18.01% year on year, and achieved net profit of 0.06 billion yuan year on year, up 32.16% year on year. As a domestic manufacturer of high-quality specialty air conditioners, the company is expected to fully benefit from the release of demand for temperature control in data centers in the future and give it an “increase” rating.

Key points to support ratings

With the exception of the industrial sector, all other sectors achieved relatively rapid growth. Looking at revenue by business segment in the first half of 2024:1) The revenue of the data service sector increased by about 61.35% year on year, mainly due to the rapid growth of energy-efficient innovative evaporative cooling and liquid cooling products in line with future development trends. Among them, evaporative cooling products were about 3.6 times the same period last year and liquid cooling products were about 6.5 times the same period last year; 2) The revenue of the industrial sector fell 53.46% year on year, mainly due to the slow pace of project delivery in the industrial sector; 3) The revenue of the special sector increased by 45.47% year on year, mainly due to hospitals and hospitals, Nuclear power and other businesses achieved relatively rapid growth. Among them, the hospital business was about 2.7 times that of the same period last year, and the nuclear power business was about 2.1 times that of the same period last year; 4) Public construction and commercial air conditioning revenue increased 101.54% year over year.

Gross margin declined due to product structure, and net profit margin remained stable. In terms of profitability, the company's overall gross margin for the first half of 2024 was 26.45%, -2.54 pct year on year. We think the main reason was the increase in the share of the data service sector with relatively low gross margin; the net margin was 8.26%, +0.65pct year on year. In terms of the period expense ratio, the company's sales/management/R&D/finance expense ratios for the first half of 2024 were 7.72%/5.90%/5.24%/0.42%, respectively, +1.03pct/-1.99pct/+0.74pct/ -0.27pct, respectively. The overall cost rate for the period was 19.28%, or -0.49pct, which remained stable.

The AI wave is driving demand for computing power, and the company is actively planning to grow in the future. Currently, the world has entered the AI era, and AI-related industries are developing rapidly. In the future, the construction of AI-related intelligent computing power centers will be further accelerated and become the main growth direction for data infrastructure. In the first half of 2024, the number of new orders in the company's data service sector was about 3 times that of the same period last year, close to the total number of new orders added last year. As orders are delivered and implemented one after another, related business will continue to grow healthily.

In terms of production capacity, the company is building a new modern manufacturing base with liquid cooling as the main product direction. The first phase is expected to be put into operation this year. Combined with the current new trend of rapid development of liquid cooling, the new base will bring new impetus to the rapid development of the company's liquid cooling business and build stronger competitiveness.

valuations

According to the company's various business conditions, we adjusted the company's profit forecast for 2024-2025 and added a profit forecast for 2026. We expect to achieve operating income of 3.118/3.843/4.419 billion yuan in 2024-2026, achieve net profit of 0.238/0.303/0.353 billion yuan, EPS is 0.89/1.14/1.33 yuan, and the current stock price is 21.7/17.1/14.7 times. The company's specificity as a domestic high quality Air conditioning manufacturers are expected to fully benefit from the release of demand in data center temperature control and other fields in the future, giving them an “added” rating.

The main risks faced by ratings

Downstream demand falls short of expectations; risk of fluctuating raw material prices; risk of increased industry competition; risk of rapid technology iteration.