Incident: The company released its 2024 semi-annual report. 2024H1 achieved operating income of 6.248 billion yuan, a year-on-year increase of 5.58%, achieved net profit of 0.213 billion yuan, a year-on-year increase of 12.24%, and realized net profit after deducting non-return to mother of 0.182 billion yuan, an increase of 28.02% over the previous year. On a quarterly basis, 2024Q2 achieved operating income of 3.377 billion yuan, a year-on-year increase of 1.0%, achieved net profit of 0.104 billion yuan, a year-on-year decrease of 3.9%, and realized net profit without deduction of 0.09 billion yuan, an increase of 45.6% over the previous year. The company's revenue and profits have been growing steadily.

Operating indicators have reached record highs, and profitability continues to improve. The company is the national flagship platform for high-end heavy equipment. It provides systematic manufacturing and services for important industries such as aerospace, energy, metallurgy, petrochemicals, mining, transportation, automobiles, etc., and plays a strategic and fundamental role in the construction of the national economy. The company's main business indicators for 2024H1 continued to grow, reaching a record high for the same period in history. At the same time, it achieved a new contract amount of 11.49 billion yuan, an increase of 10.6% over the previous year; the company's order structure and quality were further improved, and batch orders were obtained for nuclear power pipelines, main pump pump cases, nuclear grade forgings, ultra-supercritical unit castings, and gas engine castings. The company's gross sales margins for 2024Q1 and 2024Q2 were 10.93% and 17.27%, respectively, up 0.52 pct and 7.13 pct year-on-year respectively, reflecting the continued increase in the company's profitability.

High-end manufacturing reflects new quality productivity, and new product breakthroughs have been fruitful. The company bravely assumed the main force in the construction of new industrialization, promoted the high-end, intelligent and green development of the equipment manufacturing industry, and continuously achieved major breakthroughs in a number of key core technology research. The company insisted on leading industrial development with scientific and technological innovation, successfully developed the first domesticated FB2 medium voltage rotor, and achieved import substitution of a full range of FB2 material rotor forgings; successfully developed the world's first stainless steel rotor body with the largest single weight water turbine, laying a solid foundation for developing domestic and foreign markets and serving global customers; developed the world's first largest stand-alone capacity 500MW impact turbine rotor center body forging, was recognized as the “Top Ten Technological Innovation Achievements in Sichuan”, marking the “Top Ten Technological Innovation Achievements in China”, marking the “Top Ten Technological Innovation Achievements in China” The level has reached a new level. The continuous launch of the company's new products not only reflects the continuous improvement of core competitiveness, but also reflects the promotion and support for the continuous progress of China's energy equipment industry.

The power supply construction boom continues, and the company has mastered major core components. According to statistics from the Polaris Thermal Power Grid, between 2023 and March 2024, 28 provinces achieved significant progress, such as approval, commencement, and signing of 240 thermal power projects. In the first three years of the “14th Five-Year Plan”, the country approved a total of 281 coal power projects, with a total installed capacity of 0.224 billion kilowatts, of which about 0.2 billion kilowatts were concentrated in 2022 - 2023. On August 19, 2024, the National Assembly reviewed and approved 5 nuclear power projects. The total number of approved units in the past three years has reached 31 units. Overall, it has shown a positive, safe and orderly development trend, and has also enabled China to continue to lead the world in the scale of nuclear power approved and under construction. According to the statistics and forecasts of the General Water Regulation Authority, by the end of 2023, the total resources of pumped energy storage sites in China were about 0.823 billion kilowatts, of which 50.94 million kilowatts have been built, 0.179 billion kilowatts are under construction, 0.43 billion kilowatts of priority implementation projects, and 0.303 billion kilowatts of planned reserve projects. It is estimated that an additional production scale of about 6 million kilowatts will be added in 2024. Various types of power supply construction are booming. The company has mastered the core components and products of related power generation equipment, such as nuclear power pipelines, main pump pump cases, nuclear grade forgings, ultra-supercritical unit castings, gas engine casting forgings, etc., which are expected to fully benefit from downstream power supply construction needs.

Investment advice: As a major technical equipment manufacturing base in China, the company is one of the few enterprises with extreme manufacturing capabilities in the world's major technical equipment fields; several series of products are key core components of downstream power generation equipment, and it is expected that they will fully benefit from the continued prosperity of downstream power supply construction. We expect the company's revenue in 2024-2026 to be 12.444/13.88/14.604 billion yuan, up 10.5%/5.2% year on year; net profit to mother of 0.515/0.665/0.774 billion yuan, up 19.5%/29.3%/16.3% year on year, EPS is 0.07/0.09/0.11 yuan respectively, corresponding PE is 36/28/24 times, with initial coverage and a “gain” rating.

Risk warning: macroeconomic policy risk, risk of rising commodity raw material prices, risk of power-side investment progress falling short of expectations, increased risk of market competition, etc.