Incident: The company released a semi-annual performance forecast. 24H1 expects to achieve operating income of 61.30 to 6.688 billion yuan, +10-20% year on year; expected to achieve net profit of 4.44-0.494 billion yuan, +35-50% year on year; expected net profit without deduction of 4.43 to 0.485 billion yuan, +5 to 15% year on year.

Q2 Revenue growth accelerated month-on-month, and the industry's production performance was positive. The Q2 company expects to achieve operating revenue of 35.04 to 4.061 billion yuan, +11.88% to 29.67% year over year, and the Q2 revenue growth rate improved significantly compared to Q1. We believe it mainly benefits from the active production schedule of downstream air conditioning manufacturers. According to industry online data, the air conditioning industry's output in April-May was +16.24% year-on-year, and the air conditioner production schedule for June increased by 14.70% compared to the same period in '23. In addition, the company's revenue for automotive thermal management, electronic expansion valves, microchannel heat exchangers, and some special air conditioning products has also increased dramatically; judging from the revenue structure, sales volume of refrigeration components in overseas markets and commercial markets continues to increase, and the revenue structure continues to be optimized.

The net profit margin after deduction was slightly under pressure. Q2 The company expects to achieve net profit of 2.36 to 0.285 billion yuan, +41.82 to 71.51% year on year; net profit after deduction is 2.44 to 0.286 billion yuan, or -1.34 to +15.76% year on year. The reason for the high growth rate of net profit to the mother was due to the large amount of non-operating expenses due to the transfer of shares in Dun An (Tianjin) Energy Conservation in the same period last year, which led to a lower net profit base in 23Q2.

From the perspective of net profit margin after deduction, judging from the forecasted revenue and upper and lower net profit limits, the estimated net profit margin range for Q2 is 6.95% to 7.04%, down from 7.88% in the same period in '23. We believe that the reasons for the decline in net profit margin without deduction may be due to: 1) the increase in raw material prices; 2) downstream air adjustment machine manufacturers may have pressured prices on upstream component manufacturers.

The acquisition of Daiso Motors stepped up the layout of the NEV thermal management business. Dunan Environmental plans to acquire 62.95% of Shanghai Dachuang Automobile Technology Co., Ltd.'s shares in cash at a transaction price of 0.215 billion yuan, and increase Shanghai Dachuang's capital by 30 million yuan. After this transaction, Dun An held 65.95% of Shanghai Dachuang's shares, and Shanghai Dachuang was included in the scope of the company's merger. According to the performance promise, the cumulative revenue of Shanghai Dachuang during the 24-26 period was not less than 0.91 billion yuan, and the profit was not less than 71 million yuan. We believe that the acquisition of Shanghai Dachuang will help enrich the company's waterside product matrix and increase the value of bicycles. At the same time, Shanghai Dachuang's OBD products can broaden the company's business areas, bring in new volume, and develop collaboratively with the company in terms of technological innovation and customer resources.

Profit forecast and investment rating: We expect the company's 24-26 revenue to be 12.914/14.407/15.724 billion yuan, respectively, +13.5%/+11.6%/+9.1% year-on-year; net profit to mother 0.91/1.125/1.279 billion yuan, respectively, +23.4%/+23.6%/+13.7%, corresponding to PE of 12.11/9.80/8.62x, maintaining a “buy” rating.

Risk factors: fluctuating raw material prices, domestic sales demand falling short of expectations, overseas market expansion falling short of expectations, automotive thermal management orders falling short of expectations