Revenue in the first half of 2024 increased 25.6% year on year, net profit increased 515.7% year on year. The company achieved operating income of 17.04 billion yuan, +25.6% year on year, and the new power equipment business was 9.61 billion yuan, +43.4%. Among them, coal/hydropower/nuclear power equipment reached 5.87/1.36/1.52 billion yuan respectively, +44.8%/+15.4%/+18.7% respectively.

Achieved gross profit of 1.95 billion yuan, +34.0% year on year, gross margin of 11.4%, +0.7 pct year on year; gross profit margin of new power equipment was 9.9%, +2.3 pct year on year. Among them, gross margin of coal/hydropower/nuclear power equipment was 21.4%/10.0%/1.2%, respectively, +9.3/+1.1/+4.7pct, respectively. Achieved net profit of 0.523 billion yuan to mother, +515.7% YoY.

In terms of orders, the overall contract amount was -20.1%, and orders for new power equipment reached 26.03 billion yuan, +2.84%. Of these, coal power/hydropower/nuclear power reached 10.83/4.47/3.06 billion yuan respectively, -6.9%/+16.7%/+20.0% respectively.

The company has plenty of orders, and the savings and flexibility transformation business is expected to grow. Improved operational efficiency and abundant on-hand orders guarantee the growth of the energy equipment business, and order quality is expected to increase gross margin. We believe that the company's revenue from the energy equipment business is expected to grow in the future, there is room for further improvement in gross profit levels, and there is a certain degree of sustainability.

Businesses such as hydropower equipment and thermal power flexibility transformation provide new momentum. New market orders are expected to maintain a quantitative trend in the future. At the same time, pumped energy storage is developing rapidly, and thermal power flexibility transformation is one of the future development directions of the thermal power market. It is expected that the above business will be a new driving force for the company's future development.

Improving the company's overall operational efficiency and financial health can help improve profit levels. The company's cost level has continued to improve in recent years. The total cost ratio of the company's sales, management, R&D, and finance during the period was 8.6%, -1.2pct year on year. The balance and liability level also improved. The balance ratio was 79.6%, -2.8 pct year on year.

Maintain buy rating, target price HK$3.20

As an important energy equipment supplier in the country, the company will continue to benefit from the development of the energy equipment market. The net profit to the mother in 2024-2026 was 0.95, 1.39, and 1.68 billion yuan, respectively, and the three-year compound growth rate of net profit to mother was 42.5%, giving the company a target valuation of 7.0 times PE (2024E) and 0.5 times PB (TTM). We maintain a target price of HK$3.20, corresponding to an expected increase of 35% in the current price.