Matters:

The company released its 2024 semi-annual report: the company achieved revenue of 0.797 billion yuan in the first half of the year, +10.9%; realized net profit attributable to mother 0.127 billion yuan, +21.7% year over year; realized net profit deducted from non-mother 0.113 billion yuan, +30.8% year over year.

Commentary:

Q2 Both revenue and profit growth increased significantly from month to month. In 2024Q2, the company achieved revenue of 0.457 billion yuan, +17.2% year over year; realized net profit of 0.082 billion yuan, +30.1% year over year; realized net profit without return to mother was 0.075 billion yuan, +34.6% year over year. The company's Q2 revenue and profit growth performance both improved significantly from month to month.

The company's consolidated gross margin for the first half of the year was 38.5%, +5.63pct year-on-year, mainly due to the increase in the share of PLCs with high gross margins. In terms of period expenses, the company's sales expenses rate for the first half of the year was 9.75%, +1.28pct year on year; management expenses ratio was 4.77%, a slight increase of 0.17pct year on year; R&D expenses rate was 9.59%, +0.67pct year on year.

The company further increased its R&D investment in the first half of this year, accounting for 32.4% of R&D personnel.

PLC bucked the trend, and gross margin increased. Affected by the domestic manufacturing boom, according to Rui Industrial, China's small PLC market size in the first half of this year was 3.59 billion yuan, -6.1% over the same period last year. The company's PLC business achieved contrarian growth in the first half of the year, with revenue of 0.312 billion yuan, +26.7% year over year. Based on this, the domestic market share of the company's small PLC in the first half of the year was 8.7%, an increase of 1.2 pct compared to 7.5% market share in 2023. As the core component of the control layer of high-end equipment, PLC has strong software attributes, high customer stickiness, good competitive pattern, and relatively little price competition pressure. The gross margin of the company's PLC products in the first half of the year was 56.7%, an increase of 2.7 pct compared to 54.0% in 2023, highlighting the remarkable market competitiveness of the company's products. As the core component of the control layer, PLC is of great strategic significance. The localization rate for small PLCs in 2023 was 38.2%, and the localization rate for medium and large PLCs was only 5.9%. Import substitution for domestic brands is still very promising.

It drove the product to accelerate vertical iteration and horizontal expansion, and its share increased in the first half of the year. The company achieved revenue of 0.365 billion yuan in the first half of the year, a slight increase of 1.1% over the previous year. According to Rui Industrial, the size of the domestic general servo market in the first half of this year was 10.5 billion yuan, -5.8% year on year; while the company's general servo industry share was 3.4%, up 0.5 pct from the previous year. The company's PLC and servo products achieved growth in the first half of the year when demand shrank, and the share further increased. The gross margin of the company-driven business was 24.3%, which is comparable to the gross margin of the driving business for the full year of last year. The company is speeding up the iteration of servo products while further improving the performance and categories of inverters and stepper drivers. Among them, inverter product revenue has grown rapidly. The company's horizontal expansion of driving categories will further enhance the overall solution capabilities of “control layer+driver layer+execution layer”.

Investment advice: Considering that the domestic manufacturing boom is still under pressure, we lower our expectations appropriately. We expect revenue for 2024-2026 to be 1.8, 2.16, and 2.53 billion yuan (previously 1.84, 2.24, and 2.7 billion yuan, respectively); net profit to mother is 0.262, 0.324, and 0.394 billion yuan respectively (previously 0.265, 0.345, and 0.435 billion yuan, respectively); EPS is 1.86, 2.30, and 2.80, respectively Yuan, giving the company 23 times PE in 2024, with a target price of 42.8 yuan, maintaining a “strong” rating.

Risk warning: The manufacturing boom falls short of expectations; the development progress of emerging industries falls short of expectations; profitability falls short of expectations, etc.