Key points of investment

Incident: The company released its 2024 semi-annual report. 2024H1 achieved revenue of 2.988 billion yuan, -19.57%; realized net profit of 0.342 billion yuan, +1066.46%; realized net profit deducted from non-mother of 0.094 billion yuan, +293.83% year over year; achieved basic earnings per share of 0.46 yuan/share, +1050% year over year.

We have sufficient orders on hand, and actively expand overseas & new energy & spare parts markets. 2024H1 achieved an additional order of 3.327 billion yuan, including 1.196 billion yuan for waste heat boilers, 0.525 billion yuan for clean and environmentally friendly energy equipment, 1.297 billion yuan for solutions, and 0.309 billion yuan for spare parts and services. Among them, new orders for spare parts and services increased by 38.57% over the same period last year. By the end of June 2024, the company had completed an order of 6.995 billion yuan, providing strong support for the company's steady development. According to the company's September 4 investor relations activity record table, the company's future order expansion direction is mainly in three directions: 1) Overseas markets, that is, using its superior products (such as combustion engine waste heat boilers) to open up the international market and increase the international market share of products. 2) The new energy market mainly relies on the core technology of molten salt energy storage to expand its application in more energy utilization scenarios such as photothermal power generation, user-side energy storage, thermal power flexibility transformation, and zero-carbon parks. 3) In the spare parts market, following the introduction of large-scale equipment renewal and transformation policies, various provinces have now introduced action plans one after another. The company is actively paying attention to and seeking opportunities for energy saving and efficiency improvement, reducing demand for emission transformation, and demolishing old and building new business opportunities. The company has sufficient orders in hand, and is also expected to benefit from large-scale equipment renewal policies.

The gross margin of waste heat boilers and clean and environmentally friendly energy equipment has increased dramatically. By product: (1) Waste heat boilers:

2024H1 achieved revenue of 1.12 billion yuan, -24.1% year-on-year, accounting for 37.49% of revenue, and gross margin of 22.47%, an increase of 9.09pct year-on-year. (2) Clean and environmentally friendly energy equipment: 24H1 achieved revenue of 0.343 billion yuan, -11.66% year-on-year, accounting for 11.47% of revenue, and a gross profit margin of 29.31%, an increase of 14.67 pcts over the previous year. (3) Solution: 24H1 achieved revenue of 1.125 billion yuan, -17.1% year over year, accounting for 37.66% of revenue, gross profit margin of 12.73%, up 2.53 pcts year on year. (4) Spare parts and services: 24H1 achieved revenue of 0.293 billion yuan, -27.52% year-on-year, accounting for 9.81% of revenue, gross profit margin of 25.36%, year-on-year -0.52 pct. According to the company's September 4 investor relations activity record sheet, the company's order quality has improved, and internal cost reduction and efficiency measures have been continuously promoted to increase the gross profit margin of product delivery. We believe that the company's gross margin is expected to increase further as the company improves quality and efficiency.

Continue to invest in R&D to promote the optimization and upgrading of traditional products. 2024H1's R&D expenses reached 0.205 billion yuan, +31.79% year-on-year, mainly due to the increase in R&D materials. Based on the experience of photothermal power generation, zero-carbon plants, and zero-carbon parks, the company is actively expanding the multi-scenario application of molten salt energy storage technology in flexible unit transformation and comprehensive energy solutions, and comprehensively implementing the strategic development direction of new equipment, new energy, and new services. At the same time, the company continues to promote technical optimization and upgrading of traditional waste heat boilers, including combustion engine waste heat boilers, dry coke quenching product lines, and fluidized bed product lines.

Investment advice and valuation: The company has sufficient orders in hand, actively expands overseas & new energy & spare parts markets, and is also expected to benefit from large-scale equipment upgrading policies. We expect the company's revenue from 2024 to 2026 to be 8.252 billion yuan, 8.802 billion yuan, and 9.397 billion yuan respectively, with revenue growth rates reaching 2.1%, 6.7%, and 6.8% respectively, and net profit to mother of 0.322 billion yuan, 0.363 billion yuan, and 0.47 billion yuan respectively In billion yuan, net profit growth rates reached 490.7%, 12.7%, and 29.3% respectively, maintaining the “increase in holdings” investment rating.

Risk warning: Policy falls short of expectations; risk of raw material price fluctuations; risk of technology iteration; risk of market competition.