Incident: Dechang Co., Ltd. disclosed a quick performance report. 2024H1 achieved total operating income of 1.86 billion yuan, +38.8% year over year; realized net profit of 0.21 billion yuan, +20.4% year over year; realized net profit after deducting non-return income of 0.19 billion yuan, +17.0% year over year; net profit after excluding the impact of exchange earnings was 0.19 billion yuan, +44.8% year on year. Among them, 2024Q2 achieved revenue of 1.04 billion yuan, +33.4% year on year; realized net profit of 0.12 billion yuan, or -6.3% year on year; realized net profit of 0.11 billion yuan without return to mother, or -10.0% year on year.

Comment:

The gradual mass production of 24H1's new projects has led to a significant increase in revenue scale. With the split of the business, the impact of the vacuum cleaner business's strategic inventory removal in 23 years has basically come to an end. We expect business demand to be basically stable in the first half of the year; Shark, a new customer in the diversified small household appliance business, is expected to continue its rapid growth trend in 23 years; and the auto zero business is expected to continue to grow rapidly with order support.

Steady growth in business performance and improvement in profitability. 23H1 formed a high performance base due to 4kw+ exchange earnings (mainly in Q2). 24H1's net profit after excluding the impact of exchange earnings was about 0.19 billion yuan, +45% year over year, corresponding to a real profit margin of +0.4 pct to 10.2% year over year. We expect to mainly benefit from:

1) Upgrading the customer structure (brands such as Shark are positioned in the middle and high-end markets); 2) The expansion of the auto zero business scale drives improved profitability.

The company's medium- to long-term growth logic is clear: 1) The company has made positive progress in promoting important customers in the auto zero business. Currently, it is supporting well-known domestic and foreign customers such as Nexteer, ZF, and Jetstar, and is accelerating customer development and cooperation and continuously improving technical strength. 2) The introduction of SharkNinja, an internationally renowned small household appliance company, brought growth in 23 years, and is expected to continue to increase in the future; 3) TTI, a long-term high-quality customer, deepened cooperation. Considering that TTI's main revenue is concentrated on power tools, category expansion is expected to bring revenue growth; 4) Smart dishwashers have completed part of the production line construction by the end of 23 and are preparing for system review and trial production. It is expected that mass production will be achieved in 24 years, and is expected to gradually contribute revenue in the future.

Investment suggestion: The company continues to be deeply involved in motor technology, and while implementing the development strategy of “using vacuum cleaners as a business as a growth business, and EPS motors as a strategic business”, it has recently officially entered the booming robotics field and cooperated with leading domestic humanoid robot companies to open up a new development space for the company after automotive use. Overall, the company has shown superior horizontal expansion capabilities and sufficient growth momentum. The company's net profit for 24-26 is estimated to be 0.42/0.53/0.64 billion yuan (0.4/0.5 billion yuan 24-25 years ago. Considering the continuous improvement in H1's net interest rate after excluding the impact of exchange earnings, the annual performance forecast was slightly raised), corresponding to PE15x/12x/10x, maintaining a “buy” rating.

Risk warning: The quick performance report is only a preliminary estimate. The details are based on the company's official semi-annual report; product sales fall short of expectations; the risk of increased market competition; overseas demand falls short of expectations; and the risk of current dependence on a single customer.