Core views:

Huarui Precision released its 24-year semi-annual report. The company's revenue for the first half of the year was 0.41 billion yuan, up 14.93% year on year, and net profit to mother was 71.9377 million yuan, up 15.35% year on year. Among them, in the second quarter, the company achieved operating income of 0.24 billion yuan, up 16.17% year on year, and net profit to mother of 54.7469 million yuan, up 43.1% year on year.

The 24Q2 revenue side achieved steady growth, and profitability improved markedly. The company's revenue achieved steady growth in the first half of the year. The revenue growth rate in the second quarter was slightly higher than the overall growth rate in the first half of the year; the profit level increased significantly in the second quarter, and net profit to mother increased by 43.1% year on year. According to the company's semi-annual report, it is mainly for the company to respond positively to market changes and promote the steady development of the company's various businesses through various methods such as technological innovation, improvement of sales channels, and strengthening internal management.

The level of gross margin has progressed steadily, the pressure on the cost side has eased somewhat, and overseas business has performed well. The company's Q2 gross profit margin was 46.39%, up 1.93 pct year on year and 9.16 pct month on month, up a significant increase from month to month. The company's expense ratio in the first half of '24 was 20.58%, down 2.91 pcts year on year, and the pressure on the cost side eased somewhat. Among them, sales expenses decreased 2.03% year over year, management expenses decreased 16.01% year over year, financial expenses increased 27.96% year over year, and R&D expenses increased 2.33% year over year. According to the company's semi-annual report, the increase in financial expenses was mainly due to an increase in the company's interest expenses on loans and interest expenses on convertible bonds. In terms of overseas business, the company accelerated the pace of “going global”, increased overseas development efforts, continued to develop new customers, and improve overseas channel layout. In the first half of 2024, it achieved overseas revenue of 23.0469 million yuan, an increase of 43.11% over the previous year.

Profit forecast and investment advice: The company's net profit due to mother in 2024-2026 is expected to be 0.202/0.287/0.39 billion yuan, respectively. Considering the total production capacity release and repair gross profit margin, the company was given a PE valuation of 20 times the net profit due to mother in 2024, corresponding to a reasonable value of 65.35 yuan per share, maintaining a “buy” rating.

Risk warning: the risk of increased market competition; the risk of technological iteration; the risk of fluctuations in raw material prices; the risk of changes in the macroeconomic environment.