Incident: The company released its 2024 semi-annual report. The first half of 2024 achieved operating income of 10.288 billion yuan, a year-on-year decrease of 3.55%; net profit to mother of 0.187 billion yuan, a year-on-year decrease of 24.45%; net profit after deducting non-return to mother of 0.177 billion yuan, an increase of 0.49% year-on-year. Among them, 2024Q2 achieved operating income of 5.488 billion yuan, a year-on-year decrease of 10.13%; net profit to mother was 0.102 billion yuan, up 9.55% year-on-year, and 20.04% month-on-month.

Affected by fluctuations in copper prices and falling demand, the revenue scale of the company's main business declined year-on-year. The first half of 2024 was affected by large fluctuations in copper prices. Customer wait-and-see sentiment was strong, and order demand slowed; at the same time, overall demand in the domestic wire and cable market declined, and the number of company wire and cable orders decreased compared to the same period last year. 24H1's power cable business achieved revenue of 6.75 billion yuan, a year-on-year decrease of 1.94%, and gross margin decreased 0.23 pct to 4.69% year on year; wire and cable used for electrical equipment achieved revenue of 3.312 billion yuan, a decrease of 5.51% year on year, and gross margin increased 0.04 pct to 9.56% year on year. 24H1's overall gross sales margin fell 0.02 pct to 6.40% year on year, and net profit margin fell 0.50 pct year on year to 1.82% year on year. Profitability is still under pressure.

The location advantage is remarkable, and the construction of submarine cable production capacity is progressing smoothly. The company has four major production bases in Jinshan, Shanghai, Chizhou in Anhui, Yichang in Hubei, and Nanyang-Fujikura. It has good user reputation and brand awareness in East China, and has significant location advantages. In addition, the company continues to promote the construction of the Fujian Pingtan Submarine Cable Base. It is expected that the first phase of the project will be completed in October 2024. The Pingtan submarine cable base can shorten the maritime transportation time of the company's large-length submarine cables, help save transportation costs, guarantee the progress of construction projects, and facilitate future submarine cable maintenance work.

Furthermore, Pingtan has an excellent geographical location and convenient port transportation, and has certain advantages in developing the submarine cable market in neighboring provinces and Southeast Asia's “Belt and Road” countries.

Submarine cable orders will continue to be received, and delivery is expected to accelerate in the second half of the year. The company actively carries out R&D and innovation to maintain the competitiveness of its products. 24H1 obtained type test reports for 320kv and 535kv DC submarine cables, and completed the inspection of products such as 35kv and 66kv dynamic cables and 400kv DC submarine cables. In addition, 24H1 won the bid for submarine cable orders for the Three Gorges Jinshan Offshore Wind Power Phase I Project, the Datang Shantou-Nanao Lemen I Offshore Wind Power Project, and the Huaneng Yuhuan-2 Offshore Wind Power Project. We believe that as the second half of the year enters the peak of domestic sea breeze construction, the company's submarine cable orders are expected to be delivered at an accelerated pace, which will benefit the company's performance growth in the second half of the year.

Maintaining a “buy” rating: Considering the slow progress of China's sea breeze construction in 24H1, submarine cable deliveries for some of the company's projects have been affected to a certain extent, and the gross margin of the power cable business is still under pressure. Based on prudential principles, we lowered our original profit forecast. We expect the company to achieve net profit of 0.499/0.639/0.744 billion yuan in 24-26 (down 14%/11%/12%, respectively), corresponding to 24-26 EPS of 1.19/1.53/1.78 yuan, and the current stock price corresponding to 24-26 PE is 12/10/8 times. The company is the largest wire and cable manufacturer and sales enterprise in Shanghai. The submarine cable business can be expected in the future and maintains a “buy” rating.

Risk warning: risk of raw material price fluctuations; market competition increases risk; risk of slowing offshore wind power investment due to policies.