盈利能力维稳，保障净利额为全年首要目标

中国中免(601888)
    根据近日公布的数据，海南省1-8月旅客数量同比增37.5%，增长势头符合我们此前的预期。我们预计中国中免下半年的收入支撑将会维持，同时盈利水平持续提升。公司2季度毛利率环比1季度提升3.72百分点至32.8%，基本符合年初目标，但是较正常水平仍有大幅提升空间。我们预计7、8月的毛利率相比2季度有进一步提升，产品组合持续优化--珠宝和腕表类销售恢复势头，烟酒类销售依靠机场门店客流的恢复持续增加。营收层面，尽管近期受到宏观环境以及暑期特定客群影响，公司通过举办9月中旬为期一周的日上周年庆香化促销活动拉动整体季度营收。
    公司以实现收入稳步增长，保障归母净利额作为全年首要运营目标。实现情况来看，纵使营收增长略慢于市场预期，下半年利润率恢复速度有望环比提升。鉴于目前库存及市占率已基本回归至健康水平，公司暂不面临牺牲毛利率换取盈利额压力。展望4季度，公司将把握旅游旺季的营收增长潜力，依情况调整折扣力度以保障净利额目标。
    库存优化及行业规范利好态势下，外部影响逐个消除，毛利率持续恢复。1）公司库存已经逐渐回归至健康水平，且品牌方给予的退货、换货政策保障公司回避大幅促销风险。2）随着5月份海南省出台一系列打击“套代购”走私的政策，行业内价格战情况已大幅改善。公司受到行业发展逐步规范利好，市占率在6月末已回升至85%，预计毛利率伴随市占率提升仍有回升空间。3）机场业务板块，现有重点店面的租金及海外拓展有望在明年年初传出利好。4）市内免税政策有望在明年进一步优化。5）海南离岛免税规划仍未有进一步确切消息，中期内的公司运营不会受到影响。
    中长期内持续吸引核心客群，实现营收及利润企稳。伴随着消费力逐渐恢复，公司计划建设新项目并持续把握核心客群。美妆板块方面，海棠湾1期香化馆已基本完成建设，预计10月将开业；重奢板块方面，LV和迪奥有税店预计将在11及12月开业；综合商业体方面，与太古合作的海棠湾3期项目及洲际酒店项目将分别于2025和2026年开业运营。
    盈利预测：基于旅客的恢复进度及公司盈利能力的弹性，我们维持此前的盈利预测。我们预计公司2023-2025年营收增速分别实现32.1%/14.4%/13.7%；归母净利润分别实现69.1亿元、93.6亿元、118.0亿元。
    估值：我们中长期看好中国中免作为龙头企业受益于旅游及免税行业发展利好。维持公司“买入”评级，目标价132.3元人民币，基于29.0倍2024年预测市盈率，对应低于2018年以来均值1个标准差。

Expect modest sequential growth in 2H23

生益科技(600183)
    CCL and PCB industries faced ongoing challenges that added pressure onShengyi Tech’s performance. The Company’s 1H23 revenue/NP toshareholders declined by 15.9%/ 40.7% YoY to RMB7,880mn/ RMB555mn.GPM fell to 19.3% in 1H23 vs. 23.4%/20.5% in 1H22/2H22. Looking forward, weexpect modest sequential growth in 2H23, as the mgmt. mentioned recentoperations of CCL products were running on full capacity. However, we thinkinvestors should wait for a clearer signal of full recovery of the downstreamdemand, which would support revenue growth and margin recovery. MaintainHOLD, with adjusted TP of RMB16.1, based on 20x rollover 2024E P/E.
    Industry downcycle weighs on the Company’s performance. Theworldwide PCB market experienced a significant decline of 20% YoY in1H23. The falling demand hurt more on the ASP side (CCL/PCB: est. highteens /low-teens in price change) as sales volume was relatively resilient.Even though the inventory level of some downstream clients is relativelylow, they were reluctant to purchase materials. We saw the industry isconsolidating through our channel checks, which has suppressed thewillingness to pull up inventory.
    Shengyi Tech is better-positioned than its peers with operations on fullcapacity; however, the market is waiting for a clearer signal of demandreturn. Per Prismark, the Company ranked second globally in terms of CCLsales with 12% market share globally and with a broad end marketcoverage. The mgmt. also mentioned operation of CCL business is alreadyat full capacity. There are spot lights on auto, mainly EV, and server market.However, a broader market demand is still weak. Meanwhile, copper pricehas increased recently and the Company was unable to pass down theincremental cost under the current circumstances, which would further hurtthe Company’s GPM in the near term.
    We cut FY23/24E revenue and NP forecasts by 6%/8% and 26%/21%, asthe Company’s 1H23 results were lower than our expectations and the GPMcompression in downcycle is longer-than-expected. We think near-termpressure would persist, but Shengyi Tech should have modest sequentialgrowth in 2H23 from a low base. Maintain HOLD, with TP adjusted toRMB16.1, based on the same 20x rollover 2024E P/E, as the market iswaiting for a clear sign of demand recovery and up-cycle.

Soft 1H23 numbers suggest no immediate turnaround

深南电路(002916)
    The worldwide PCB market experienced a significant decline of 20% YoYin 1H23, mainly due to falling demand for electronics products under globalmacroeconomic pressure. This is in line with our previous prediction that “weexpect the global PCB market will persistently encounter macroeconomicchallenges due to weakened consumer demand and the ongoing destockingcycle among downstream industries.” (link) Shennan Circuit (002916 CH), apure PCB manufacturer, is not immune to the market weakness. MaintainHOLD, with lowered TP of RMB72.
    PCB segment (nearly 2/3 of total revenue) remains weak, with marginerosion in a declining market. Segment revenue dropped by 12.4% YoYand 11.6% QoQ to RMB3.9bn in 1H23. The gross margin declined by1.49ppts to 25.9% compared to 1H22. Weakening demand in domestic andoverseas telecom markets and delay in upgrade for Eagle stream platformdragged the segment sales. The contribution of the Company’s AI serverrelated PCB products was not meaningful, suggesting Shennan is not yet akey beneficiary from the current AI boom. Auto PCB was the only spotlight,with 40% YoY growth in orders due to a low base.
    Substrate segment was dealt a heavy blow with a significant 39.9% YoYdrop in revenue, as downstream manufacturers continued destocking.Although the Company actively ventured into new projects and cultivatednew customer relationships, ASP erosion was particularly severe forpackage substrate. GPM was 18.8% in 1H23 vs. 30.3% and 23.1% in1H22/2H22, affected by market down cycle and rising costs of new factories.
    The Company reported a 13.5% YoY decline in revenue to RMB6.0bn anda substantial 37.02% YoY drop in net profit to RMB474mn in 1H23. GPMwas lowered to 22.9% vs. 26.5% and 24.6% in 1H22/2H22. The Company’s1H23 results were below our estimates, which were already lower thanconsensus. We cut FY23/24E revenue and NP by 14%/14% and 29%/24%,as we think the business will continue to be affected by industry downcycleand a near-term turnaround may not be imminent. Maintain HOLD, withlowered TP of RMB72, based on 25x rollover 2024E P/E. We keep thesame P/E multiple of 25x, which is over 1SD below 5-year historical avg., asthe market is waiting for a clear sign of demand recovery

Recent correction overdone; Accumulate for Apple’s share gain and auto/comm. momentum

立讯精密(002475)
    Luxshare retreated over 10% in the past week mainly due to market concernson Huawei’s Mate 60 Pro launch and news report on iPhone restrictions byChinese government and state companies. We view both incidents do not havematerial impact on iPhone shipment given Mate 60’s limited production capacityand high user stickiness on Apple’s ecosystem. Despite challenging macroheadwinds, Luxshare delivered solid sales/NP growth of 20/15% YoY in 1H23,and we are positive on further share gain in Apple’s iPhone/Watch/AirPodsOEM/component, robust outlook in auto/comm., and better operating efficiencyin 2H23E. We trimmed FY23-25E EPS by 1-6% to reflect lower GPM on mixshift and better growth in auto/comm.. The stock now trades at 18.6x/14.9xFY23/24E P/E (1-sd below 8-yr avg. P/E). Maintain BUY with new TP ofRMB44.9 (based on same 28x FY23E P/E). Upcoming catalysts include iPhone15 launch, Vision Pro ramp-up and auto tier-1 progress.
    Solid 2H23 outlook: Apple’s share gain, Vision Pro and strongauto/comm. As the major OEM/component supplier of Apple’s iPhone/Airpods/Watch, we believe Luxshare will benefit from iPhone 15 cycle in3Q23 and continue share gain in top module and iPhone assembly in2H23E. Despite limited contribution from Apple’s Vision Pro in 2H23E, weare positive on gradual share gain in FY24/25E. As we expect auto tier-1business and communications segment to continue strong growth (40-50%CAGR) and overall profitability will recover in 2H23/FY24E, we forecastearnings will grow 24%/25% YoY in FY23/24E.
    1H23 in-line with impressive growth in automotive/communications.Luxshare posted 1H23 revenue/NP growth of 20%/15% YoY, in-line withprior profit alert, and pre-announced 3Q23 earnings growth of 3-27% YoY,which is resilient given near-term weakness in smartphone/CE market (83%of FY23E sales). By segment, CE/computer/auto/communication grew 18%/-5%/52%/68% YoY in 1H23. GPM recovered QoQ to 11.3% in 2Q23 (vs.10.0% in 1Q23) thanks to continuously improving product mix (auto/comm.).In particular, Luxcase Precision (casing/top module subsidiary) postedrevenue/NP growth of 14%/18% YoY in 1H23 and NPM improved to 2.0%in 1H23 (vs 1.8% in 1H22).
    Recent noise offers buying opportunity; Reiterate BUY. We suggestinvestors accumulate the stock after recent correction on market concernsover Mate 60 Pro launch and potential iPhone restriction by Chinese statecompanies, which have limited impact on iPhone shipment in our view. Thestock now trades at 18.6x/14.9x FY23/24E P/E, close to 1-SD below 8-yearhist. avg. P/E. Reiterate BUY with new TP of RMB44.9 (28x FY23E P/E).

Sequential margin contraction indicates inventory digestions may persist till FY23E

韦尔股份(603501)
    Willsemi’s 1H23 revenue and net profit were RMB8.9bn and RMB153mn, down20% and 93% YoY, respectively. Margin continued to contract in 2Q23,suggesting the Company is marking efforts to digest inventory. 2Q NP wasnegative again, failing to continue its profitability from 1Q. This has confirmedour previous prediction that “inventory digestion continues, however, notnecessary a hint of market turnaround”. (link) Looking forward, we think the destocking process is likely to persist till the end of the year, which will continue tohurt the Company’s overall margin. Maintain HOLD, with adjusted TP at RMB85.
    Margin erosion in a declining market (mobile/security CIS). 2Q’s GPMdropped to 17.3% from 24.7% in 1Q23 and 33.3% in 2Q22, mainly due toweak mobile and security market demand and inventory digestion.Mobile/security sensor sales declined 45%/23% in 2022 and furtherdeclined 14%/25% YoY in 1H23. Inventory was RMB9.8bn, down by 30%from the peak in 3Q22. However, MOI (months of inventory) was still 6M.As de-stocking will continue into 2H23, we expect the overall GPM willremain under pressure. Once the inventory is back to normal level (3-4M),GPM can be expected to gradually return to previous 30% level.
    We are more conservative than the consensus as we expect a gradualrecovery in 2024. Counterpoint estimated smartphone shipment willdecline 6% to 1.15bn in 2023, “worst in ten years”, remain cautious on 1Q24and show elevated risk of a delayed recovery into next year. GivenWillsemi’s large inventory and low consumer sentiment, we expect totalrevenue will decrease modestly by 5% in 2023. Recovery may come in2024, when the Company’s sales resume double-digit growth. 2024/25Erevenue is estimated to reach RMB22.9bn/RMB26.4bn, which is 11%/14%lower than consensus.
    Maintain HOLD with TP adjusted to RMB85, based on rollover 29.3x(unchanged) FY25E P/E. Current price is trading at 55x 24E P/E and 32x25E P/E, which is fair valued. We think investors should watch Willsemi’sGPM trend and inventory levels in the following quarters. Potential upsideincludes earlier-than-expected consumer demand recovery, better sales ofnew products.

向400元价格带发力，新系列推出助力品牌拓客

珀莱雅(603605)
    9月5日，珀莱雅官宣上新能量系列，相较于已有的三大系列定位的100-300元价格带，能量系列的4款单品进一步定位400元以上价格带。能量眼霜和面霜已上架天猫旗舰店，预计全新的水乳套装将在9月10日上架。借双国庆、十一大促等节点到来，品牌客单价及客群有望迎来进一步突破。在上周的半年报业绩会上，管理层针对双十一大促规划提出了明确的目标及策略。尽管可能面临海外品牌较大的促销力度，公司目标保住6.18的销售排名并维持全年净利率高于13%指引。下半年的营销策略集中在：1）拓客方面，将进一步加大投入做到线上广告与线下营销配合，并以能量系列接入更多400-800元价格带的新客；2）整体客单价方面，将发扬直播间产品连带推广的优势并推出更高性价比的大规格包装。在上半年的消费降级大环境中，珀莱雅依靠口碑和投放实现了大规模新客拓展（新客占比达到60%）并依靠平台直播间愈加成熟的运营模式逐步提升了客单价（天猫客单价提升至320元，抖音客单价达到280元）。在消费复苏趋势延续的环境下，我们预计公司仍将维持中长期的稳健发展。
    回顾上半年，中端客群消费降级趋势利好珀莱雅大单品的销售。考虑中端价位消费者消费力的减弱，以及消费体验的维护，公司对单品涨价持谨慎态度，目前推出的能量系列可以帮助公司在承接新客群的同时有效提升客单价。上半年的跨平台数据显示，以往在400-1000元单品价格带购物的客群已经开始选择购买性价比更高的200-400元单品。珀莱雅大部分产品定价在200-300元，因此成功引流大量新客，整体新客占比达到60%。下半年中，公司预计通过持续投放引流做到大单品销量翻倍。尽管公司表示纳新是整体营收增长的主要驱动力，但是老客的收入贡献保持了稳步提升。上半年中，各平台销情维稳，天猫平台复购率为38%，抖音平台复购率为20%，抖音平台退货率降至25%（2022年全年为30%）；口碑大单品依旧为上半年销售提供了有力支持，天猫/抖音平台大单品销售贡献占比分别为75%/60%。上半年整体毛利率录得70.5%，同比升2.4个百分点，主要依靠1）三个子品牌，彩棠、Off&Relax和悦芙媞盈利水平保持并提升了收入贡献占比；2）面膜、面霜等的毛利水平实现进一步提升。
    估值。我们对公司股本基数作出追溯性调整以反映增股影响（每10增4）。调整后目标价基于平均估值48.5倍2024E年中EPS。

Sound business operation; rising depreciation drags on earnings

三峡能源(600905)
    CTGR Group announced its 1H23 results, with in-line business operation butoperating cost missing expectations. CTGR achieved revenue of RMB13.70bn, upby 12.98% YoY. Attributable NP was RMB4.52bn, dropped by 10.10% YoY. AlthoughCTGR reported solid operation in electricity generation and slightly beat on-grid tariff,the increase in costs and operating expenses (under updated accounting standards)led to a drop in earnings. We believe CTGR will grow rapidly since its abundantprojects under construction are about to operate in 2H23 and following years, andlower new energy upstream costs will lead to higher IRR of the projects. Weadjusted our TP to RMB6.24 and maintained a BUY rating.
    Robust operational performance drives 1H23 revenue growth; risingoperating costs erode overall earnings. In 1H23, CTGR’s revenue was up by12.98% YoY due to resilient power generation growth. Attributable NP dropped by10% YoY. Its operating cash flow rose 21.79% YoY. CTGR’s revenue rose whileattributable NP slipped due to: 1) 14.55% YoY rise in on-grid power generation; 2)slightly beat on-grid tariff for wind/solar power of RMB0.496/0.506 /kWh; 3) 34.67%YoY increase in operating costs thanks to higher depreciation under accountingstandard change (the depreciation of project operation costs accrue as the unitsenter operation in 2023 after a trial run in 2022) and higher management fee; and4) 1.6% YoY rise in management expenses, while investment earnings descendedby RMB0.27bn.
    CTGR has abundant projects in construction and approved, with expectedpromising growth. In 1H23, CTGR recorded a newly-added new energy installedcapacity of approximately 1.8GW (0.84/0.65GW of wind/solar power). Moreover,CTGR recorded an approved and filed project capacity of 5.5 GW, and the plannedinstalled capacity of projects under construction totalled 13.2 GW. With the projectsgradually commencing by 2H23 and next year, CTGR’s installed capacity of newenergy is expected to speed up. Meanwhile, CTGR’s IRR of newly-added powerplant projects will potentially climb due to lower upstream costs, benefiting CTGR’searnings.
    We adjusted our TP to RMB6.24, maintained BUY. Considering accountingstandard adjustment, we slightly raised our estimated operating cost toRMB12,219/14,344/16,371mn in FY23-25E, and adjusted attributable NP toRMB8,932/10,534/12,956mn in FY23-25E. However, we maintained our keyassumptions unchanged and stayed optimistic about CTGR thanks to its solidgrowth of power generation and steady on-grid tariff, and several projects are aboutto start operation. Thus, we raised our target FY23E PE from18x to 20x (close to3-year hist. avg.PE of 19x) for its sound business outlook, and we adjusted our TPto RMB6.24. Maintain BUY

2Q rev/np +1%/3%; all eyes on cost savings

伊利股份(600887)
    2Q results came in slightly below us, with revenue and net profits growing only1%/3% (vs CMBIe MSD growth for both), respectively. We attribute this to <1%/-9% growth/decline in liquid milk/milk powder revenue, when both exhibited slowdown from 1Q. Management did not explicitly revise down the 10% full year revenue guidance, and looks forward to seeing the below to help attain the target. These include 1) the continued double-digit growth in Satine, when premium room-temp milk remains popular among health-conscious consumers; 2) a recovery on 2C demand for cheese products, as initiatives taken for 2C (new launches) and 2B (consumer education) should start bearing fruit; 3) a gradual recovery on low -temp SKU along with the resumption of consumption habits post-pandemic; and 4) the resolution of patent bottleneck associated with Ausnutria. While these are legitimate to us, however, some of them might take further time to materialize, and the implied 15% 2H revenue growth looks to be quite challenging to achieve, in our view. On the contrary, cost efficiency could be the last resort to achieve a 9% net margins by 2025E, and the trajectory was well-tracked with a 0.6pp decrease in SG&A ratio in 1H. We remain buyer of Yili.
    Other call takeaway. 1) UHT yogurt is undergoing a transition, when the sales of new SKU has not fully caught up with the obsolete. The decline has sequentially narrowed with momentum improving in July/August; 2) Goodwill impairment on Ausnutria could be detrimental, and Yili is striving its best to prevent this from happening. Excluding Ausnutria, Yili delivered 2% organic revenue growth for 1H; 3) 70% payout ratio will be maintained as capex cycle has already peaked-out; 4) raw material inventory writeoff of RMB400mn was a drag to 1H net profits, and the same could happen in 2H as the mismatch between demand and supply remains.
    Earnings change. We lower our 2023-24E revenue by 3% each to reflect our concern. We also trim our gross margins by 0.4pp to reflect the destocking impact from smaller IMF brands upon the enactment of the new license legislation. These are partially mitigated by a 0.2pp lower in SG&A ratio, and result in a 2% cut in our 2023E net profits.
    Valuation. Our new TP is based on an updated 21.0x (from previously 24.0x) roll-forwarded mid-24E PE, which benchmarks to -1sd below average (from previously at average). We now value both Mengniu (2319 HK, BUY), Yili (600887 CH, BUY) and Feihe (6186 HK, HOLD) at -1sd below average, in view of a lukewarm dairy demand amid a faltering consumption recovery.

业绩稳健增长，二季度常规业务复苏

迈瑞医疗(300760)
    迈瑞医疗 2023 年上半年实现收入 184.8 亿元，同比增长 20.3%，实现归母净利润 64.4 亿元，同比增长 21.8%；其中二季度实现收入 101.1 亿元，同比增长20.2%，实现归母净利润 38.7 亿元，同比增长 21.6%，公司发展稳健。公司盈利能力持续稳中有升，受益于三大核心业务毛利率的改善，整体毛利率上升至65.6%（ +1.5 ppts），带动归母净利率同比提升 0.4 个百分点至 34.9%。
    二季度常规业务快速复苏。 2023 年初国内疫情爆发导致 ICU 相关设备需求激增，拉动生命信息与支持业务收入大幅增长，一季度同比增长超 60%，上半年同比增长约 28%。为满足 ICU 所需设备的订单需求，一季度公司产能向国内生命信息与支持业务倾斜，抑制了一季度 IVD、医学影像及海外业务的增长。 3月以来，国内医院常规诊疗恢复，公司产能回归常态， IVD和医学影像业务快速反弹，二季度分别同比增长约 38%和 36%。我们认为，尽管一季度疫情对医院端需求产生影响，公司整体业绩仍能维持稳健增长，且疫情后受影响产线能迅速修复，凸显了迈瑞医疗的多产线布局在行业环境变化时优秀的抗干扰能力。
    IVD 长期增长动能足。 上半年公司 IVD 仪器在海内外装机均取得亮眼成绩，将持续带动试剂业务的快速增长，其中血球 BC-7500 系列国内新增装机超1,000 台，化学发光仪器国内新增装机 960 台， 国际新增装机 1,400 台。此外，公司通过收购海肽生物持续提升试剂研发实力，预计下半年将推出三项对标行业领先水平的心肌标志物试剂。公司通过收购 DiaSys 完善海外供应链平台搭建，将助力公司 IVD 业务的海外长期增长。
    欧洲市场复苏，海外市场持续高端突破。 上半年公司海外收入达 66.9 亿元，同比增长 10.1%。 三大产线的海外高端突破持续进行，生命信息与支持产线、 IVD 产线和医学影像产线分别突破 168 家、超 180 家和超 110 家海外新高端客户。 此外， 上半年公司的欧洲业务复苏，收入同比增长 6.2%至 10.9亿元。 除欧美市场外的新兴市场共实现收入 43.4 亿元，同比增长 14.5%。 二季度，欧洲和新兴市场恢复强劲增长，收入同比增速均超 20%。我们认为海外市场受国内环境因素影响小，将维持良好增长势头。
    维持买入评级，目标价 380.03 元人民币。 考虑到下半年挑战的市场环境，我们降低公司 2023E 收入增速预期至 17.8%， 预期 2023E 经调整净利润增长20.8%。 基于 9 年的 DCF 模型，给予 380.03 元人民币的目标价（ WACC：9.0%， terminal growth rate： 3.0%

2Q23 earnings +24%; Gross margin below expectations but likely rebounds

恒立液压(601100)
    Hengli’s net profit in 2Q23 grew 24% YoY to RMB653mn, with growthaccelerated from 18% in 1Q23. That said, we do not see this as high qualitygrowth as it was largely driven by FX gain that offset a surprisingly decline ingross margin (-4 ppt YoY). While the overall hydraulic components demandremained weak in Jul and Aug, we expect the gross margin to recover from 2Qas we understand that Hengli reduced the discount offered to customers. Wetrim our earnings forecast in 2023E/24E by 8%/9% on lower volume and grossmargin. Our TP is revised down to RMB83, based on unchanged 42x 2023EP/E (1SD above the 4-year average of 30x to reflect the acceleration of earningsgrowth). We continue to like Hengli as we expect the commencement ofhydraulic components production base in Mexico to help speed up thepenetration in the US market. Besides, the expansion in ball screw (a keycomponent of robots) will serve as a new growth driver.
    Earnings growth in 2Q23 driven by largely by fx gain. Revenue in 2Q23grew 20% YoY to RMB2bn, accelerated from 10% in 1Q23 due to low baseeffect. Gross margin, to our surprise, contracted 4ppt YoY and 4.1ppt HoHto 36.8%, due to more discounts offered to customers. This resulted in 2.5%YoY decline in EBIT. Helped by the depreciation of RMB, net finance incomegrew 60% YoY to RMB292mn. Net profit therefore grew 24% YoY toRMB653mn.
    Key highlights in 1H23 results. Sales volume hydraulic cylinder (forexcavator) increased 1% YoY to 322k units. Sales volume of non-excavatorcylinder grew 18% YoY to 114k units, driven by marine, AWP and industrialapplications. Total revenue/net profit in 1H23 grew 14%/21% YoY toRMB4.45bn/1.28bn. Operating cash inflow slightly dropped 5% YoY toRMB991mn.
    On-track development of ball screw product. A ball screw is amechanical linear actuator that translates rotational motion to linear motionwith little friction. Ball screws can be used to drive changes in the verticaland horizontal orientation of robot arms. Hengli’s ball screw product iscurrently at the trial stage. The first batch production equipment is expectedto be arrived in Sep. Upon a full commencement of phase 1 capacity, theannual output value is expected to be RMB400-500mn.
    Risk factors: (1) further weakness in the demand for hydraulic componentsfor excavators; (2) lack of recovery of gross margin

Investors focusing on 800G transceivers ramp-up after 1H23 results

中际旭创(300308)
    Innolight released 1H23 results. Total revenue was RMB4,004mn (-5.4% YoY),mixed impacts from increasing demand for AI-related transceivers anddeteriorated demand for traditional datacenter products. NP was RMB613.8mn(24.6% YoY), mainly driven by higher GPM and operating cost optimization.1H23 NP was close to the mid-point of the preliminary range. Maintain HOLD,with unchanged TP at RMB104.
    AI-related transceivers have offset non-AI transceivers. Company’s2Q23 revenue showed sequential growth (17.9% QoQ) primarily attributedto heightened shipment of 800G transceivers. However, total revenue fellslightly in 1H23, as the Company pointed out that the demand for200G/400G transceivers from datacenter was declining. This trend alignswith our previous expectations that AI investment will likelycannibalize certain traditional server expenditures and negatively affectsales of non-AI high speed transceivers. (link)
    Margins stand out particularly. GPM expanded to 31.1% in 2Q23 vs.29.5%/29.3% in 1Q23/2022. NPM also increased to 16.8% in 2Q23 vs.13.6%/12.7% in 1Q23/2022. The increase is mainly due to decrease inprocurement costs and favorable product mix driven by increasing 800Gproducts shipment.
    Maintain HOLD, with unchanged TP at RMB104. We lowered 2023-25Erevenue forecasts by 6%-11%, as non-AI weakness is greater than ourprevious expectations. 2023-25E GPM was adjusted to 30.5%-31.7%,reflecting favourable product mix as the Company is expected to delivermore high data rate transceivers that have higher margins. The net impactsfrom lower sales and higher GPM left NP almost unchanged. 1H23 totalrevenue/NP now accounted for 39%/42% of our full-year estimates.
    Potential upside/downside: We believe investors are closely monitoringthe scaling up of 800G transceiver capacity and the Company’s ability tosustain the current performance, i.e., sequential sales growth andcontinuing margin expansion. Meanwhile, the deteriorated demand of200G/400G transceivers for datacenter should be on investors’ radar. Whilewe regard Innolight’s optical transceivers business positively, we believe thecurrent valuation is full.

1H23 miss amid property sector headwind

广联达(002410)
    Glodon announced 2Q23 results: total revenue increased by 7.2% YoY to RMB1.76bn in 2Q23, below consensus estimate of RMB2.00bn. Net profit was RMB129.2mn in 2Q23, down 55% YoY, mainly due to the soft housing construction market and Glodon’s adjustment to its organizational structure. Total revenue/net profit was +10.7/-37.5% YoY in 1H23. In view of the long-lasting property sector headwind, the company revised down the full-year revenue/net profit growth guidance, and now expects total revenue/net profit to deliver teens percentage/positive YoY growth in FY23 (previous: +30/30% YoY). We lowered FY23-FY25 total revenue forecast by 7-16%, as the property sector headwind persists and organizational adjustment impacts short-term revenue growth. That said, Glodon’s leadership in China’s digital construction market remains intact and we expect its earnings growth to reaccelerate in FY24E (when we expect its focused strategy to deliver results). Maintain BUY with new TP of RMB45.10 on 9x FY23 EV/Sales.
    Construction costing: soft demand impacts newly signed contract.Construction costing SaaS revenue grew by 34% YoY to RMB1.1bn in 2Q23,accounting for 81/60% of construction costing revenue/Glodon’s total revenue. Newly signed contract valued declined by 8.3% YoY to RMB1.57bn in 1H23, mainly due to the soft demand from property market (especially the SME clients) and the Glodon’s adjustment to its sales policy (shortening certain contract term from 3 years to 1 year). The new digital cost solution business was accumulating lighthouse customers and projects at its early development stage, with its revenue up by 123.7% YoY to RMB303mn in 1H23 (16% of costing SaaS revenue). Looking into 2H23, Glodon will focus on the expansion of KA customers such as state-owned enterprises and increase penetration rate into the large-enterprise market.
    Construction management: shift focus to quality growth. Construction management revenue declined by 20% YoY to RMB316mn in 2Q23 and represented 18% of total revenue, as construction companies are more cautious on digital spending amid the property sector headwind. This has led to a longer deal negotiation and deployment cycle. To weather the sector headwind, Glodon will focus on both revenue and earnings growth (instead of just revenue growth) in the future, mainly through optimizing product structure and increasing sales of self-developed products.
    Short-term pressure on margin. Overall GPM was flattish YoY at 85.6% in 1H23, as the increase in construction costing GPM was offset by the decline in construction management GPM (due to operating deleverage). The company continues to invest in PaaS and AI to solidify its leadership in the digital construction market, with its R&D expenses up by 30.7% YoY and accounting for 28.0% of total revenue in 1H23 (1H22: 23.8%). OPM was down 6.9pct YoY to 9.4% in 1H23. We lower our target price by 23% to RMB45.10 (previous: RMB58.41, ex-dividend), based on 9.0x FY23E EV/Sales, which is a discount to SaaS peer’s average (10.0x), reflecting our conservative view on the SaaS demand from property sector. Maintain BUY.

2Q23 net profit +73% YoY in line; Arms race still good for equipment makers

晶盛机电(300316)
    Zhejiang Jingsheng (JSG)’s net profit in 1H23 surged 83% YoY to RMB2.2bn,in line with the pre-announced profit released in mid-Jul. Net profit in 2Q23 grew73% YoY to RMB1.3bn, a record high. As of end-Jun 23, total backlog reachedRMB27.8bn (solar/semiconductor: 88%/12%), which continues to offer visibilityover the coming 18 months. We maintain our TP at RMB106, based on 32x2023E P/E, on the back of 32% earnings CAGR in 2023E-24E. While the solarsector has been under pressure, we expect equipment makers will outperformother segments in the supply chain due to the arms race to expand and upgradecapacity. Upcoming catalysts include: (1) new orders on solar cell & moduleequipment; and (2) spin-off of crucible business unit.
    1H23 results: Explosive growth of materials segment. Revenue grew92% YoY to RMB8.4bn in 1H23. By segment, equipment revenue (solar +semiconductor) grew 71% YoY RMB6.1bn. Materials revenue (crucibles,diamond wire saw & sapphire) surged 2.4x YoY and 1x HoH to RMB1.88bn.Materials gross margin sharply expanded by 27.3ppt YoY to 54.7%, whichmore than offset the 2.4ppt contraction of equipment segment (to 40.1%).Blended gross margin therefore expanded 2.7ppt YoY to 42.7%.Administrative expense ratio dropped 1ppt YoY to only 2% in 1H23. R&Dexpense ratio increased 0.8ppt YoY to 7.1% which we believe is essentialgiven JSG’s continuous development of new technology. In 1H23, JSGrecognized RMB70mn of fair value gain (1H22: nil). Operating cash inflowreached RMB1bn in 1H23, a strong recovery from an outflow of ~RMB52mnin 1H22.
    Key highlights of 2Q23 results. Revenue surged 99% YoY to RMB4.8bn.Gross margin expanded 4.2ppt YoY and 3.6ppt HoH to 44.2%, driven bythe ASP hike of materials segment. Minority interest surged 12x YoY toRMB208mn due to the strong growth of non-wholly owned materialbusiness. Net profit grew 73% YoY to RMB1.3bn.
    Strong pricing power reflected in the growth of customers’downpayment. As at end Jun 2023, contract liabilities (an indicator ofdown-payment from customers) surged 49% YoY to RMB10.4bn.
    Risks: 1) Slowdown in solar power capex; 2) lower-than-expected grossmargin; (3) decline in crucible price.

2Q23 earnings +35% YoY in line; Boom lift in overseas the upcoming driver

浙江鼎力(603338)
    Dingli’s net profit in 1H23 grew 45% YoY to RMB831mn, close to the low end of the estimated profit growth of 40-60% announced in mid-Jul. That said, we believe it could be due to the fluctuation of fair value of investment (-RMB64mn) which is non-operational. The results in 1H23 imply record high quarterly net profit of RMB512mn in 2Q23 (+35% YoY). Dingli has identified the overseas, in particular the US, as the key market for its electric, high performing and high margin boom lifts, which will serve as a profitable growth driver in the future. We believe the clear strategic position will help Dingli to differentiate itself from peers. We maintain our TP of RMB67, based on 23x 2023E P/E, on the back of 23% earnings growth in 2024E. Our target multiple remains well below the historical average of 31x. Reiterate BUY. Dingli remains one of the key picks in our universe.
    An outstanding set of results in 1H23. Revenue grew 5% YoY to RMB3.1bn in 1H23, driven by the 13% YoY increase in overseas revenue (63% of total revenue). Gross margin expanded 6.4ppt YoY to 34.4%, driven by decline in freight rate and raw materials cost, as well as depreciation of RMB rate. Net finance income surged 147% YoY to RMB216mn, helped by RMB155mn FX gain (+95% YoY). Net profit grew 45% YoY to RMB831mn.
    Record high quarterly profit in 2Q23. Revenue grew 6% YoY to RMB1.79bn. Gross margin expanded 5.1ppt YoY to 32.1% in 2Q23. While such margin level is lower than that achieved in 1Q23 (37.6%), it was largely due to the relatively low contribution from China market in 1Q23 (gross margin in China has been 10ppt lower than that in overseas). Net finance income surged 116% YoY to RMB223mn, helped by the depreciation of RMB. Net profit grew 35% YoY to RMB512mn. Operating cash inflow surged 2x YoY to RMB611mn.
    Boom lift in overseas will be the key growth driver. Boom lift contributed 38% of the total revenue in 1H23 (up from 28% in 1H22). In particular, boom lift’s overseas revenue surged 89% YoY in 1H23. Gross margin of boom lift expanded 5.6ppt YoY to 25.25%. Going forward, Dingli expects its new boom lift model will be a key driver in the US. With a backlog of ~300 units (1st batch) at present, Dingli expects the delivery to the US will happen in 4Q23E. Dingli believes that the gross margin will be higher than that in China even taking into consideration the anti-dumping and countervailing duties.Dingli expects rising overseas contribution of boom lift (40% in 1H23) will fuel both the revenue and gross margin in future.

2Q Rev/NP +20.4/21.0% as pre-announced

贵州茅台(600519)
    Moutai announced 2Q results that matched with its pre-announcement, and wedo not expect the numbers to be eventful to near term share price. While Moutaihas been a laggard of the recent baijiu sector rally in response to a positive markettakeaway from the recent politburo meeting, the company remains a soliddefensive name which shields itself from any malignant price competition throughits brand scarcity. Our recent channel check with distributors indicated that pricesof sealed/unpacked Feitian Moutai steadied at RMB2,940/2,740 per bottle byend-July, largely unchanged from that we observed in early June, not to mentiona healthy 15-day inventory level. Forward-looking into 3Q in which gifting seasonbegins with the Mid-Autumn festival, we see every reason for Moutai to sustainits high-teen growth trajectory. We remain Buyer of Moutai.
    Key 2Q results takeaway
    2Q revenue booked RMB31.6bn, up 20.4%, compared to 18.7% in 1Qand 19.0% in the pre-announcement. This was mainly driven by 21.0%growth in both Moutai and Series liquor sales. Assuming a high singledigit volume growth, we attribute the predominant growth driver to ASPuplift. 2Q GPM stood at 91%.
    Production wise, in our view, the growing Series spirit contribution shouldcomprehend Moutai’s competitiveness in the entry high-end segment,while alleviating the growth bottleneck of Moutai spirit.
    We believe 2H outlook is positive with relatively more gifting scenariosand increased corporate procurement needs along with further macrorecovery.
    Regarding innovative launches, subsequent to the debut of Moutai icecream, the company migrated into the coffee segment with new attemptsin Moutai Americano, Moutai Dirty, Moutai Latte, etc. The CEOmentioned that Moutai shall expand its product coverage with the aim ofattracting younger customers.
    Earnings change/Valuation. We moderately adjust our forecasts on back of anin-line 2Q results. Our TP is still based on 41.0x end-23E P/E, which representslong-term average since 2019. Our methodology reflects our relative optimism(vis-a-vis other F&B diversified of which target multiples are based on -1sd belowlong term average) on Moutai that it is one of the core beneficiaries of China’sreopened economy with high certainty in earnings delivery.

Impressive margin improvement in 1H23

药明康德(603259)
    WuXi AppTec reported 1H23 revenue of RMB18,871mn, up 6.3% YoY, andattributable recurring net income of RMB4,761mn, up 23.7% YoY, with attributableadjusted non-IFRS net income of RMB5,095mn, up 18.5% YoY. 1H23 revenue /adjusted Non-IFRS net income accounted for 45-52% of both our full-year estimatesand consensus estimates, which also fell in its average historical range. Non-IFRSgross profit margin (GPM) improved by 3.4ppt to 41.6% while non-IFRS net profitmargin increased by 2.8ppt to 27.0% in 1H23, driven by favourable currencyexchange rates and continuously improved operating efficiency. Excludingcommercial COVID-19 projects, overall backlog increased by 25% YoY. Despite thehigh base of 2022, Management reiterated revenue growth target of 5-7% YoY whileslightly raised non-IFRS gross profit growth target to 13-14% YoY (from 12-14% YoY)in 2023E, indicating management’s confidence in the Company of navigating throughthe tough macro environment.
    Non-COVID projects to firmly fuel sustainable growth. Supported by stronggrowth of D&M services, non-COVID revenue growth of WuXi Chemistrysegment accelerated quarter-by-quarter in 1H23 with +51.6% YoY in 2Q23 vs+21.8% YoY in 1Q23 (both excluding commercial COVID-19 projects).Management expected COVID revenue of ~RMB3.0bn in 2023E with~RMB1.5bn already recognized in 1H23. We think the strong growth of nonCOVID revenue reflected the robust demand from the Company’s extensive andbalanced client base amid the temporarily challenging financing environment inglobal pharmaceutical industry.
    Benefiting from strong demand growth for new modalities services.Revenue from TIDES (mainly oligo and peptides) in WuXi Chemistry segmentgrew by 37.9% YoY in 1H23, on top of a 337% YoY growth in 2022. Backlog ofTIDES dramatically increased by 188% YoY in 1H23, while Managementexpected over 70% YoY growth of TIDES revenue in 2023E. We expectmeaningful future revenue from the CMO services for a blockbuster dual-targetedGLP-1 product. We are positive on the Company’s competency in the globalpeptide market to capture the increasing weight-loss market opportunity, basedon its established capacities (over 10,000 liter peptide solid-phase synthesizersas of Feb 2023) and R&D capabilities (1,000 staff as of Feb 2023).
    Margin improvement driven by favourable currency exchange rates andoperating efficiency improvement. Management indicated that the GPMimprovement of 3.4ppt in 1H23 was mainly attributed to favourable currencyexchange rate (2.4ppt) and increasing operation efficiency (1.0ppt). If no majorchange in foreign exchange in 2H23E, GPM could be maintained at above 40%for 2023E, according to Management. The Company is also optimizing employeeoutput by implementing big data and automation in services.
    Maintain BUY. We revised our TP from RMB110.69 to RMB 116.73, based on a10-year DCF model with WACC of 11.57% and terminal growth of 3.0%. Weforecast WuXi AppTec’s revenue to grow by 6.1%/ 28.8%/ 25.8% YoY andadjusted non-IFRS net income to grow by 12.5%/ 24.8%/ 23.2% YoY in 2023E/24E/ 25E, respectively.

Green power giant forges ahead

三峡能源(600905)
    China Three Gorges Renewables (CTGR) is one of the pioneers among newenergy power operators. The Company is a subsidiary of CTG, whose activelydevelops wind and solar power. CTGR plans to achieve a newly installed capacityof 5,000 MW in solar and wind power in 2023, with installation progress expectedto accelerate in 2H23. We anticipate that lower upstream costs may improveCTGR’s IRR of the new energy projects. CTGR is also exploring the integration ofmultiple new energy to develop innovative projects and looking for further growthspace. Currently, CTGR is trading at 17x FY23E PE. We assign CTGR withFY23E target PE of 20x and arrive at the target price of RMB 6.79/ share.Initiate with BUY.
    CTGR is one of the top players among new energy power operators.CTGR is a subsidiary of CTG that focuses on developing new energy withgreat financial resilience and advanced technology, including wind power andsolar power, and other new energy such as pumped storage, and hydrogenenergy. CTGR aims to achieve newly-added installed capacity of 5,000 MW fosolar and wind power in 2023. Even though the installation progress wasslightly slower in 1H23, we expect its installation progress will speed up in2H23 to reach its installation target in 2023.
    CTGR has strong reserve projects that supports its rapid growth in newenergy installation. Lower upstream costs of wind and solar power haveled to higher IRR of the company's projects. By 2022, CTGR’s projectreserve exceeds 130mn kW. The newly-added identified project achieve54.88mn kW, including 9.85mn kW of onshore wind power and 25.93mn kW ofsolar power. We believe abundant projects reserve will send great support forthe further growth of CTGR’s installed capacity. Additionally, based on mgmt.’sguided stable tariff assumption, CTGR’s installation willingness will up in 2023as the IRR of wind and solar power projects may up as the falling upstreamcost.
    CTGR has several competitive advantages in the comparison of the newenergy power operators under the "Big Five and Small Noble 4" PowerGroup. CTGR outperforms in revenue growth, net profit margin, solar powerinstalled capacity, etc. We believe CTGR's new energy installed capacity andpower generation will continue to perform well in 2023, due to upstream costreduction and IRR increase trends, as well as the company's advanced costcontrol ability. As a result, we expect the company's revenue and net profit tomaintain a strong growth momentum in 2023.
    We assign CTGR with FY23E target PE of 20x and arrive at the targetprice of RMB 6.79/ share, initiate with BUY. We expect CTGR’s net profitto be RMB9.7bn, RMB11.79bn, and RMB14.44bn in 2023, 2024, and 2025,respectively, with EPS of RMB0.34, RMB0.41, and RMB0.50/share.Additionally, We estimate CTGR will achieve its installed capacity target of5000MW for solar and wind power in 2023, based on the Company's costcontrol capabilities and rising IRR of the projects, and stable realized tariff for2023. Currently, CTGR is trading at 17x FY23E PE. We assign CTGR withan FY23 target PE of 20x and arrive at the target price of RMB 6.79/ share.Initiate with BUY.

海外IVD收购再下一城，全球化进程提速

迈瑞医疗(300760)
    迈瑞医疗拟以现金形式收购由GorkaHoldingGmbH持有的DiaSysDiagnosticSystemsGmbH（中文简称“德赛诊断”）75%股权，收购总价预计约1.15亿欧元（约合9.07亿元人民币）。交割完成后，公司及GorkaHoldingGmbH将分别向德赛诊断增资3,000万及1,000万欧元，用于支持德赛诊断的未来业务发展。上述两笔交易的总额合计约1.45亿欧元（约合人民币11.43亿元）。
    国际化布局再下一城，加速拓展全球市场。德赛诊断成立于1991年，总部位于德国霍尔茨海姆，是全球知名的体外诊断品牌，产品包括超90种用于常规及特殊诊断的生化和免疫比浊试剂，以及配套质控品及校准品，还拥有用于半自动及全自动分析仪和POC仪器等。德赛诊断在北美、欧洲、拉美、亚太均拥有子公司，在欧洲、亚太及拉美地区均设有生产基地，终端客户遍布全球140多个国家。预计并购完成后，迈瑞医疗将合并德赛诊断约500名海外员工，从而强化公司海外IVD产线的生产和营销能力。
    收购估值合理，标的历史财务表现稳健。根据公司公告及彭博数据，德赛诊断2021、2022财年分别实现收入4,937万欧元、7,277万欧元（包含部分新冠收入），22财年收入同比增长47%；2021、2022财年分别实现净利润337万欧元、470万欧元，22财年净利润同比增长40%。此次并购花费1.15亿欧元获得德赛诊断75%股权，估值约为2.1倍FY22PS，32.6倍FY22PE。我们认为并购估值合理，未来通过迈瑞医疗赋能，德赛诊断的产品组合有望进一步丰富，生产能力有望较大提升，获得持续稳健的盈利增长。
    迈瑞医疗体外诊断产线国际化进程再加速。此次并购延续迈瑞医疗一贯的并购思路，即围绕现有产线持续拓展能力边界，扩大市场空间。依托德赛诊断在全球体外诊断市场深耕30余年的国际化销售及供应链网络和人才队伍，迈瑞医疗有望完善体外诊断供应链平台的全球化布局，加强海外本地化生产、仓储、物流及售后能力，加速突破海外中大样本量客户群，实现体外诊断产线的全面国际化。此外，德赛诊断在质控品及校准品领域研发及生产能力，也将帮助迈瑞医疗完善体外诊断产线的产品配套，提升产品综合实力。
    维持买入评级，目标价396.48元人民币。我们预计体外诊断将成为拉动迈瑞医疗中长期增长的核心业务之一，此次收购德赛诊断有望加速公司体外诊断的国际化，助力体外诊断业务的海外市场突破，为公司的长期增长奠定基础。基于9年的DCF模型，维持396.48元人民币的目标价（WACC：8.5%，terminalgrowthrate：3.0%）。

Full-year guidance unchanged

伊利股份(600887)
    We hosted a NDR with Yili management to obtain follow-up post the company’sinvestor day on 14th Jul and 2Q operational update. Overall, Yili maintained itsinitial guidance of a HSD top line growth with a 0.3pp uptake in net margins forthe year. On a sequential basis, 2Q sales has further accelerated from that of1Q. This consists of drivers such as QoQ improvement in UHT milk, especiallythat of high-end UHT milk, double-digit growth in adult formula, growth in lowtemp SKUs (despite a tough comp) and a stable cheese momentum over 2Bchannel. Separately, Yili reaffirmed that, albeit deflating raw material prices,gross margins will likely remain stable, when reasonable discounts to stimulateretail sales likely offset the savings. In other words, any improvement inprofitability will be solely driven by operation cost savings. Concerning theremainder of the year, Yili remains upbeat and see scope for further recovery totake place, thanks to a high debut density from brands like Satine andAmbrosial. While we remain lukewarm on the dairy segment from a risk-rewardperspective, we think Yili is a relative outperformer among its peers thanks toits operation scales, more frequent new launches and above-industry milkformula growth. We are buy-rated.
    Raw material cost impact to GPM. Despite a small, or a LSD drop in rawmilk costs, Yili expects a stable GPM for 2023E as the merit will likely beoffset by a small increase in other material costs such as sugar, packagingmaterials, not to mention retail discounts. Mix upgrade will be the only drivingforce to boost GPM and financially we look for a 0.2-0.3pp hike over 2023-25E.
    Earnings assumptions/ changes. We largely maintain our 2023/24Eestimates. For 2023E, we continue to assume 1) a 5.5%/ 20%/ 20% liquidmilk/ low-temp dairy/ IMF sales growth YoY, respectively. These underpin a7.7% 3-year revenue CAGR between 2022-25E. Combined with the GPMassumptions above, our net margins for 2023-25E are set at 8.0%/ 8.3%/8.7%. Overall our forecasts largely tally with management’s expectation onrevenue/ pre-tax profits of RMB 135.5bn/RMB 12.5bn. We also introducedour 2025E forecasts.
    Valuation. Our new TP is based on an updated 24.0x (from previously25.0x) end-23E PE, which still benchmarks to its 5-year average. Comparingto Mengniu (2319HK, Buy), which we value at -1sd below average, weassign a higher target multiple to Yili to reflects the latter’s stronger IMFbusiness outlook in the near term.

Record high quarterly profit in 2Q23E

浙江鼎力(603338)
    Over the weekend, Dingli announced that the net profit in 1H23E is expected toincrease 40-60% YoY to RMB803-918mn. This implies a record high quarterlynet profit of RMB484-599mn in 2Q23E (up 28-58%), which we think is slightlybetter than expectations. As highlighted in our report “Margin expansion in 23E;Volume growth in 24E” on 5 Jul, Dingli is a beneficiary of the decline in freightrate and steel cost, as well as the appreciation of foreign currency against RMB.Looking forward, we expect Dingli to deliver accelerating sales volume growthin 2024E upon the commencement of the smart factory. We maintain our TP ofRMB67, based on 23x 2023E P/E, on the back of 23% earnings growth in2024E. Our target multiple remains well below the historical average of 31x.Maintain BUY.
    Reasons for the profit surprise in 1H23E. Dingli’s estimated net profit ofRMB803-918mn in 1H23E accounts for 58-62% of our full year forecast. Webelieve Dingli, with an estimated 50%+ of overseas revenue, recorded arelatively large fx gains given the weakness of RMB in 2Q23. Besides, weexpect a continuous expansion of gross margin due to the decline in freightrate and steel price. On the product side, the transformation of electric andintelligent AWP models helped expand the overseas market.
    New capacity to drive growth in 2024E. The main construction work ofDingli’s new smart factory has recently been completed and themanufacturing equipment is now at the testing stage. The factory is mainlyfor the production of boom lifts (36-50 metres) and scissor lifts (33-36metres). We expect the factory will commence operation starting 2024E.
    Earnings forecast unchanged. We expect the earnings in 2H23E will bedriven by a resilient export and potential recovery of China’s demand, inparticular after the listing of Horizon Construction (9930 HK, BUY), Dingli’smajor customer in China. That said, we do not expect a further sharpdepreciation of RMB to drive fx gains in 2H23E (versus a large fx gain in2H22). We maintain our forecast at the moment and will update ourassumptions after the release of the full set of 1H23 results in Aug.
    Key risks: (1) Further intensified competition in China AWP market; (2)Unexpected slowdown of overseas demand; (3) sharp rebound of RMB rate.

Earnings expectation is settling

中国中免(601888)
    2Q pre-announced. After market close last Friday (7 July), CTGDF preannounced major financial data for its 1H23 results. Revenue came in atRMB35.9bn, up 29.7% YoY, when net profits reported at RMB3.9bn, down1.9% YoY. This implies 2Q23 revenue and net profits to be RMB15.1bn andRMB1.6bn, up 38.8% and 14.3% YoY, respectively. In the announcement,the Company also disclosed that its 1H gross margin has improved by 7.8%HoH, when that of 2Q has gone up by 3.67% QoQ.
    Our view. The RMB32.4bn sales achieved by Hainan operators for 1H23should have given a good gauge to what CTGDF could attain over the sameperiod. Meanwhile, we estimate Hainan contributed approximately RMB9-10bn revenue to CTGDF for the quarter, and this should slightly track belowus. Separately, net profit was a small miss on a few potential factorsincluding 1) lower than expected GPM of 32.6% (although it continued toclimb QoQ, it was still below 2Q22), 2) a weakening RMB which inflated itsprocurement cost, 3) any bottleneck in accessories SKU which sawinsufficient inventory in 1Q, and 4) a rising earnings contribution from airportDFS with lower profitability. Despite these, investor expectation on full-yearnet profit has already edged down to approximately RMB7-8bn. All elseconstant, if 1H momentum was to extend into 2H, we think the Company’searnings downcycle could approach to its end. In other words, we believeany share price rally in the near term would mainly be valuation-driven.
    Key long-term initiatives. While a diverted travel traffic (to overseas) anda faltering consumption sentiment were the known drags to CTGDF’sperformance, we continue to see a few key positive for the Company tosustain its domestic leadership. These include 1) the new Haikou DF mall,when its sales have already surpassed one-third of that of Sanya HaitangBay with positive net profits contribution, 2) the joint collaboration withCNSC (49% acquired by CTGDF in March this year) which should yieldoperational synergy aside from that of Hainan.
    Valuation. Our TP is based on 48.0x end-23E P/E, which represents itsaverage since 2020, when market started to re-rate the stock for a series ofpolicy tailwinds. Our TP and earnings estimates are under review.

Margin expansion in 23E; Volume growth in 24E

浙江鼎力(603338)
    We believe the listing of Horizon Construction (9930 HK, BUY), the majorcustomer of Dingli in China market, will enhance the visibility of Dingli’s AWPorders over the coming 1-2 years. Besides, we expect Dingli to deliveraccelerating sales volume growth in 2024E upon the commencement of smartfactory with annual capacity of 4,000 units of AWP. On the margin side, weexpect Dingli to deliver meaningful gross margin expansion given the decline infreight rate and steel cost, as well as the appreciation of foreign currency againstRMB. We revise up our earnings forecast by 2%/5% in 2023E/24E and raise ourTP to RMB67, based on 23x 2023E P/E. Maintain BUY.
    Horizon Construction to boost its AWP fleet after the recent IPO.Horizon Construction raised HK$1.5bn (or ~RMB1.4bn) in May. We expectHorizon to boost its AWP fleet size by 15%/20% in 2023E/24E, throughdirect procurement or cooperation with external lease companies (fordetails, please see our report “Horizon Construction – No.1 equipmentoperation service provider ready to capture the opportunities in AWP” (link)).We believe Dingli will be a key beneficiary, as Horizon has long been a keycustomer (Based on our calculation, revenue from Horizon accounted for11%/34% of Dingli’s total /China revenue in 2022).
    New capacity to drive growth in 2024E. The main construction work ofDingli’s new smart factory has just been completed and the manufacturingequipment is now at the testing stage. The factory is mainly for theproduction of boom lifts (36-50 metres) and scissor lifts (33-36 metres). Weexpect the factory will commence operation starting from 2024E. We believesales volume growth will accelerate.
    Raise earnings forecast by 2%/5% in 2023E/24E. We revise down ourrevenue forecast by ~17% in 2023E-24E as we previously modelled somecontribution from new capacity starting from 2023E. That said, we revise upour gross margin assumption by 4-5ppt in 2023E/24E given the decline infreight rate and steel price. Besides, the appreciation of USD and EURagainst RMB since early this year will enhance Dingli’s margin. All in all, ourearnings forecast is revised up.
    Higher multiple to reflect growth acceleration. We revise up our TP toRMB67, based on 23x 2023E P/E (previously 25x 2022E), on the back of23% earnings growth in 2024E. Our target multiple remains well below thehistorical average of 31x.
    Key risks: (1) Further intensified competition in China AWP market; (2)sharp rebound of RMB rate.