Event: the company released its semi-annual report for 2023, with operating income of 566 million yuan, an increase of 21.53% over the same period last year, a net profit of 18.9994 million yuan, an increase of 256.07% over the same period last year, and a deduction of 16.7139 million yuan for non-net profit, an increase of 203.34% over the same period last year. The company achieved a turnaround from losses to profits.

Steady progress has been made in reducing costs and increasing efficiency, and profitability has continued to improve. 2023Q2, the company realized operating income of 332 million yuan (year-on-year + 55.50%), net profit of 10.0396 million yuan (+ 171.81%), and non-net profit of 9.6983 million yuan (+ 158.76%). In terms of profit margin, 2023H1's sales gross profit margin and net profit margin were 17.83% and 1.71% respectively, year-on-year + 4.53pct/+6.07pct, in which the net profit rate changed from negative to positive, and the performance turned from loss to profit, mainly due to the company's continuous improvement in operation and management, increasing various measures to reduce costs and increase efficiency, and the level of gross profit has been improved. From a sub-plate point of view, the gross profit margin of 2023H1 suspension system spring / car body and interior spring / precision injection molding parts is 2.68% 36.21% plus 13.81%, respectively, compared with the same period last year + 3.56pct/+11.99pct/-0.02pct, in which the gross profit margin of car body and interior spring increased significantly, mainly due to the adjustment of product structure, the increase of product unit price, and the obvious improvement in cost control.

Suspension spring business gross profit margin short-term pressure, South Korea Dayuan technology leading bring synergistic effect.

In 2021, the company spent 245 million yuan to buy the 70% equity held by South Korea's Dayuan Steel in Beijing Dayuan and Jiangsu Dayuan. In terms of technology, the large round suspension spring thermoforming and hollow stabilizing rod thermoforming production process is in the lead, which can fill the vacancy of Meili's only cold forming process, and realize the comprehensive coverage of Meili in the cold / hot forming process of suspension spring and stabilizing rod. to meet the needs of different mainframe factories and production capacity. In addition, the company introduced the first German suspension spring cold coiling equipment with the largest wire diameter in the world to adapt to the trend of large wire diameter spiral springs of new energy vehicles, and the introduction of wire drawing and heat treatment equipment from Italy and Germany effectively improved the overall level of suspension spring materials. 2023H1, Beijing Dayuan and Jiangsu Dayuan realized operating income of 104 million yuan / 76 million yuan, which was 130.11% respectively compared with the same period last year. In recent years, the company's business is subject to more investment in plant and equipment, depreciation of fixed assets and other factors, the overall business gross profit margin is on the low side. At this stage, Dayuan still has a large surplus capacity, with the future capacity release, scale effect gradually reflected, it is expected that the profitability of the company's suspension spring business is expected to improve.

Benefit from the high demand for new energy vehicles, continue to open up downstream customers. In the first half of 2023, China's automobile production and sales were respectively + 9.3% compared with the same period last year. As a bright spot in the car market, new energy vehicles sold + 44.1% in the first half of the year compared with the same period last year, with a market share of 28.3%. Through the development of new customers and participation in the acquisition of new models and new projects, the company provides a new driving force for the company's future performance growth. In 2022, the sales of the company's new energy customers grew rapidly, and BYD / ideal / NIO Inc. / Zero became the company's main new energy customers, among which BYD entered the company's top five customers for the first time. At present, the company is a first-class supplier to some well-known brand car companies at home and abroad, including Geely / BYD / BMW / ideal / NIO Inc. / Zero / SAIC GM / Chang'an / Jianghuai / Great Wall / Hyundai / Jaguar Land Rover and so on. At the same time, the company has established long-term and stable cooperative relations with many international first-class auto parts suppliers, such as Wandu / Foggia / Lien Pai / Tinak / Zaifu / Magna / Bentler / Delphi, etc. and enter the global procurement system of international auto parts suppliers.

Independent research and development of new material technology to comply with the trend of automobile lightweight. According to the guidelines of "Technology Roadmap 2.0 for Energy Saving and New Energy vehicles", the lightweight coefficient of fuel-fueled passenger vehicles in China is expected to be reduced by 10%, 18%, 25%, and 15%, 25%, respectively by 2025, 2030, 2035, and 15%, respectively. The technical performance of ML1900 new material independently developed by the company is in the leading position in the industry. after it is used in spring manufacturing, it will greatly improve the lightweight level of automobile spring and make an important contribution to the lightweight of automobile as a whole. According to the development trend of the industry, the company will take the initiative to open up and create new markets by using its own advanced research and development of new technologies / new products / new materials, so as to provide a new driving force for the company's future performance growth.

Investment advice: the company is a leading manufacturer of high-end springs in China. With the mild recovery of the macro-economy, the good performance of new energy vehicles and automobile exports helps to promote the sustained and steady growth of the industry. It is expected that the company will continue to benefit from the high demand downstream, and the suspension spring business will gradually achieve a large-scale effect, which is expected to lead to an improvement in profitability. We believe that the company is expected to maintain a good growth trend in the next 3-5 years, and it is expected that the company will achieve a net profit of 0.61 million yuan in 2023-2025, corresponding to a PE of 33.1 pounds. Coverage for the first time, giving a "overweight" rating.

Risk tips: industry environment change risk; raw material price fluctuation risk; acquisition integration risk and so on.