Incident: The company recently released its 2024 semi-annual report. In the first half of 2024, it achieved operating income of 22.352 billion yuan, YoY +0.50%; realized net profit to mother of 0.019 billion yuan, YoY -68.94%; gross profit margin was 4.80%, a year-on-year decrease of 0.60 pct. Looking at a single quarter, 2024Q2 achieved operating income of 12.309 billion yuan, YoY +3.95%; realized net profit to mother of -0.002 billion yuan, YoY -108.85%; and gross profit margin of 4.80%, a year-on-year decrease of 0.69pct.

Comment: Rising copper prices are weakening cable demand, and industry competition is squeezing profit margins. The number of the company's wire and cable orders declined year-on-year in the first half of 2024. On the demand side, the increase in copper prices mainly caused strong customer wait-and-see sentiment and overall market demand was relatively insufficient; on the supply side, gross margin of cable products declined due to increased competition in the industry; combined with factors such as rising copper prices and increased repayment cycles, the company's performance declined year on year. On the cost side, the company's 2024H1 sales/management/development/finance expenses were 1.74/0.239/0.357/0.239 billion yuan, respectively, +0.55%/-11.32%/+4.33%/-1.32%, respectively. The share of period expenses in operating income was 0.78%/1.07%/1.60%/1.07%, respectively. The cost ratio for the period decreased slightly. The average financial cost decreased significantly from the same period last year.

The share of power grids winning bids has increased, and the future of the sea breeze cable can be expected. 2024H1 won bids for 19 provincial power company power grids, an increase of 7 compared to 2023H1, 9 more bid packages, a ranking increase of 1 place among peer manufacturers, and ranked third in winning bid share. In addition, it has also won bids for China's construction and installation of the National Supercomputing Center, the Shaanxi Hualongxing Photovoltaic Power Generation Project, and China Tianchen Shanghai Huayi, etc., and the market development work is progressing steadily. In terms of submarine cables, the new installed scale of China's ocean wind is expected to exceed 40 GW in 2023-2025. As an important component of the sea breeze project, submarine cables have high value and technical content. The national submarine cable market space can reach 38.5 billion yuan in 2025, and the company is expected to continue to benefit.

Promote the development of the high-end equipment cable market and continue to promote diversified layouts. The company actively lays out cables for high-end equipment such as nuclear power, locomotives, new energy, aerospace, etc., and vigorously promotes the development of key markets.

The company's 8,000-kilometer aerospace special cable project has been approved, and the 1,200-kilometer project is under construction.

Profit forecast: Baosheng Co., Ltd. is a high-quality wire and cable supplier in China. It is optimistic about the company's good reputation and competitiveness in the cable industry and continues to expand in new markets. The company is expected to achieve operating income of 45.855/47.954/49.923 billion yuan in 2024-2026, and net profit of 0.249/0.335/0.446 billion yuan, corresponding to EPS of 0.18/0.24/0.32 yuan, respectively. It is covered for the first time, giving it an “increase in weight” rating.

Risk warning: Market demand falls short of expectations, raw material prices rise, and industry competition intensifies.