Key points of investment:

24Q2 saw a strong increase in the company's performance. On July 5, 2024, the company announced its semi-annual performance forecast for 2024. The company expects to achieve operating income of 6.13 billion yuan to 6.688 billion yuan in the first half of 2024, an increase of 10-20% over the previous year. It is expected to achieve net profit attributable to shareholders of listed companies of 0.444 billion yuan - 0.494 billion yuan, an increase of 35-50% year on year, and is expected to achieve net profit of 0.443 billion yuan - 0.485 billion yuan after deducting non-recurring profit and loss billion yuan, a year-on-year increase of 5-15%. According to the performance forecast estimate, the company is expected to achieve operating income of 3.504 billion yuan to 4.061 billion yuan, an increase of 12-30% over the previous year, and is expected to achieve net profit attributable to shareholders of listed companies of 0.236 billion yuan to 0.285 billion yuan, an increase of 42-72% year-on-year. Compared with the 24Q1 performance acceleration, the main factors are: 1) steady growth in production and sales of various types of refrigeration components; 2) automotive thermal management, electronic expansion valves, microchannel heat exchangers, and some special products Sales of air conditioners and other products increased dramatically; 3) sales of refrigeration components continued to rise in overseas markets and commercial markets, and the revenue structure continued to be optimized; 4) historical issues left over from the company's transfer of shares in Dunan (Tianjin) Energy Saving Systems Co., Ltd. led to large amounts of non-operating expenses in the same period last year, which had a significant impact on net profit attributable to shareholders of listed companies, etc., and the overall performance of the company met our expectations.

Home empty production schedules have exceeded expectations, and demand for upstream components is strong. According to industry online data, from January to May 2024, household air conditioners achieved total sales volume of 94.53 million units, up 18.2% year on year. Domestic and export sales reached 50.3/44.23 million units respectively, up 11.2%/27.4% year on year. In terms of domestic sales, Jiakong 24Q1 shipped a total of 25.7446 million units, +17.0% year-on-year, with cumulative shipments of 24.5536 million units in April-May, +5.7% year-on-year, with a slight decline in growth in the same period of 23 years; in terms of export, 24Q1 shipped 25.3204 million units, +21.8% year-on-year, with cumulative shipments of 18.9137 million units in April-May, +35.6% year-on-year. In terms of upstream components, according to industry online data, the cumulative sales volume of air conditioning electronic expansion valves/four-way valves/stop valves was only 54.822/83.568/174.077 million in January-May, an increase of 20.3%/15.3%/18.0% year-on-year. Valves continued to benefit from the high production schedule since the beginning of 24, and overall demand was strong, all of which achieved double-digit growth.

Maintain a “buy” investment rating. We maintain our previous profit forecast for the company 2024-2026, and expect to achieve net profit of 1.008/1.222/1.412 billion yuan, respectively, or +37%/+21%/+16% compared to the same period, corresponding to the current price-earnings ratio of 10/8/7 times, respectively. On July 1, the company issued a voluntary disclosure notice on the acquisition of a controlling interest and capital increase in Shanghai Dachuang Automobile Technology Co., Ltd., which is expected to enrich the company's product matrix on the waterside of the thermal management system and increase the value of bicycles. At the same time, Shanghai Dachuang is a tier-1 supplier, with customers covering mainstream domestic OEMs such as BYD, Geely, SAIC, GAC, Ideal, and NIO Great Wall. It is expected that in the future, service promotion will be carried out jointly with the company's thermal management team to promote complementary customer resource advantages and enhance business synergy. We continue to be optimistic that the profitability of the company's traditional refrigeration business will continue to increase, driven by revenue structure optimization and internal cost reduction and efficiency, and there is room to double profit margins against major competitors. At the same time, the auto parts business has maintained rapid growth in on-hand orders and revenue, and the second growth curve is becoming more and more clear. Large-caliber electronic expansion valves will become a competitive tool for the company to overtake corners, narrow the gap with leading companies in the industry, and maintain a “buy” investment rating.

Risk warning: risk of fluctuations in raw material prices; risk of downstream customer expansion falling short of expectations; increased risk by industry competition.