Incident: The company released its 2023 interim report. 2023H1 achieved revenue of 950 million yuan, +20.5% year-on-year; realized net profit of 95 million yuan, +70.4% year-on-year; realized net profit of 90 million yuan after deducting non-return net profit of 90 million yuan, +78.7% year-on-year.

Looking at a single quarter, Q2 achieved revenue of 6.1 billion yuan, +24.8% year on year, and +79.2% month on month; achieved net profit of 60 million yuan, +88.7% year on year, and +69.7% month on month. The company has signed sufficient new orders, and its profitability has improved.

The company's market development has been smooth, new orders have been signed sufficiently; project delivery management has been strengthened, and overseas market revenue has increased.

2023H1 achieved a new order of about 2.6 billion dollars (tax included), signed 6 sets of large-scale air separation units of 30,000 grade or above, won the bid for 40,000 grade air separation complete units in the domestic petrochemical industry, opened up a new situation for the company in the domestic petrochemical large-scale air separation field, and signed the first domestic tube-wound heat exchanger project exported overseas for large-scale liquefied natural gas plants. The company focuses on improving project delivery capabilities. Many important projects at home and abroad, such as Baowu Qingneng, Quwo, Hohhot, and the Middle East DP project, have progressed smoothly. 2023H1 achieved overseas revenue of 370 million yuan, +346.9% year-on-year, driving steady growth in the company's revenue and profit.

High-margin overseas projects confirmed an increase in revenue share, driving the company's performance growth and profitability. The gross margin of 2023H1 company was 24.0%, +7.4 pp, net margin was 10.0%, +2.9 pp; period management expenses ratio was 9.0%, +0.5 percentage points year on year; the increase in gross margin was mainly due to a sharp year-on-year increase in overseas revenue with a high average gross margin, which increased to 39.1%; the increase in net interest rate was less than that of 2023H1, mainly due to an increase of 026 million in asset and credit impairment compared to 2023H1. Looking at 2023Q2 alone, the company's gross margin was 25.5%, +9.7pp, month-on-month, +4.0pp; net margin was 9.8%, +3.3pp, and -0.6pp; the month-on-month decline in net interest rate was mainly due to the company's total credit and asset impairment losses of about 38 million dollars in a single quarter in 2023Q2.

The company is a leading domestic air separation equipment enterprise. Customer resources are of high quality and stable, equipment manufacturing capacity is constantly improving, and it is expected to achieve steady growth. The company's downstream customers include large, world-renowned industrial gas companies or international engineering companies such as Linde Group, Air Products, Plex, Yingde Gas, Italy's Danieli, and British Petrofac, Beijing Gas Group, Shenzhen Gas Group, CNPC, CNOOC, Baowu Group, CNNC, Baiyin Nonferrous, China Metallurgical Science and Industry Group, Shaagu Power, and Guoxin Energy. The customers are of high quality and strong stickiness. The cost performance advantage of the company's products is obvious. It has a strong cost advantage in international market competition in the Middle East, Southeast Asia, Central Asia and South America, and is expected to continue to benefit from “Belt and Road” overseas exports. The company's fund-raising project was put into trial production in 2023M1, effectively alleviating the company's production capacity bottleneck. The subsidiary Jiaxing Fusstar's foreign investment project is currently progressing smoothly. After completion of the project, it will further enhance the company's large-scale cryogenic equipment manufacturing capacity and increase the company's profitability.

Profit forecasts and investment recommendations. It is estimated that the company's net profit for 2023-2025 will be 2.5, 3.7 million yuan, and 480 million yuan respectively, corresponding to EPS of 1.59, 2.29 and 2.99 yuan respectively, corresponding to the current stock price PE, 19, 13, and 10 times, respectively. The compound net profit growth rate for the next three years will be 50%; the company will be given a target PE of 20 times in 2024, with a target price of 45.80 yuan for six months; covered for the first time, and given a “buy” rating.

Risk warning: Risks such as downstream demand falling short of expectations, production capacity commissioning and construction falling short of expectations, project progress falling short of expectations, overseas business operations, exchange rate fluctuations, etc.