The company predicts a 27%-35% year-on-year increase in 2Q24 profit

Yilian Network released a performance forecast. In the first half of 2024, the company expects to achieve operating income of 2.616-2.718 billion yuan, a year-on-year increase of 28%-33%; achieve net profit of 1.338-1.39 billion yuan, an increase of 30-35% over the previous year; and achieve net profit after deduction of 1.229-1.283 billion yuan, an increase of 36-42% over the previous year. Corresponding to 2Q24, the company expects to achieve operating income of 1.452-1.554 billion yuan, a year-on-year increase of 26-35%, and a median increase of 30%; net profit to mother of 0.77-0.821 billion yuan, with a median increase of 27-35%, and a median increase of 31% year-on-year; and realized net profit of 0.709-0.763 billion yuan, an increase of 28-37% year-on-year, and a median increase of 33% year-on-year.

The company's forecast exceeded market expectations, which we believe is mainly due to the degree of recovery in downstream demand and the net interest rate level exceeding expectations. Based on our median forecast, the 2Q24 net margin was 52.9%, a slight increase of 0.4 ppt over the same period last year, and remained stable. We believe that the main benefit was that the 2Q24 dollar exchange rate was higher than the 2Q23 average level and cost-side optimization, which hedged the downward pressure on gross margin caused by changes in revenue structure.

Key points of interest

Downstream demand continues to pick up, and overseas macroeconomic resilience is showing. In the first half of 2024, the company's revenue and profit have simultaneously grown by more than 30% for two consecutive quarters, reflecting the continued strong demand from downstream dealers to replenish inventory. According to data from the General Administration of Customs, the amount of phones exported by 5M24 Fujian Company to Europe and the US increased 33% year-on-year, which is mutually confirmed by Yilian's performance. In terms of the sustainability of downstream demand, we see Markit data showing that the US manufacturing and service sector PMI indices were 52 and 55 respectively in June 2024, and the PMI index has continued to be above the boom and dry line since 2024, reflecting the resilience of the US economy. We believe that overseas companies' demand for office equipment is expected to continue.

New conference products and cloud office terminals were introduced to promote the growth of the new business scale. In terms of conference products, in April 2024, the company released the new video conferencing product MVC S40. The built-in dual camera system and IntelliFocus function can provide a wider field of view and more dynamic and flexible display, and improve the clarity of sound transmission through AI-enhanced audio algorithms. In terms of cloud office terminals, the company launched the BH70 Bluetooth headset in March. We determine that in the second quarter and the second half of the year, the company is expected to launch more new headsets to enrich the series matrix. We believe that the company's continued promotion of new products will support the growth of new businesses.

Profit forecasting and valuation

Considering the recovery in downstream demand, we revised the company's profit forecast for 2024-25 at 5.0% and 5.2% to 2.522 and 2.941 billion yuan. The company's current stock price corresponds to 19.1 and 16.4 times P/E in 2024 and 2025.

Considering the heightened market sentiment brought about by the recovery in performance, we raised the company's target price by 21% to RMB 46 based on a P/E ratio of 23 times in 2024. We maintain our outperforming industry rating, and the target price still has 21% room to rise compared to the current stock price.

risks

Overseas macroeconomic uncertainty, new business progress falling short of expectations, exchange rate risk.