Core views

Downstream inventory bottomed out in the first half of 2024, and industry sentiment recovered. The company's revenue increased 18% year on year in the first half of the year; cost reduction and efficiency increased, and gross margin improved further. In the first half of the year, the company's comprehensive gross profit margin was 23.90%, up 2.32 pcts year on year, and net profit to mother increased 51% year on year. The company continues to deepen its global layout. In the first half of 2024, the company's overseas base revenue increased to 20% of total revenue, and the share of the company's export revenue increased to 31%. Against the backdrop of a recovery in industry prosperity and a friendly supply and demand environment, the company is expected to continue to increase its share and profitability. The US is expected to start cutting interest rates in 2024, and a series of domestic real estate policies are expected to boost real estate sales, which in turn is expected to further boost demand for intelligent controllers.

occurrences

The company released its 2024 mid-year report. In the first half of 2024, the company achieved revenue of 5.016 billion yuan, an increase of 17.85% over the previous year; net profit to mother was 0.389 billion yuan, an increase of 50.68% over the previous year.

Brief review

1. Revenue and profit both increased in the first half of the year, and Q2 performance increased sharply.

In the first half of 2024, downstream inventory bottomed out and industry sentiment recovered. The company continued to adhere to a high-quality development strategy, actively seize structured opportunities, and achieved good growth by increasing technological innovation, enhancing product strength, and improving internal operational capabilities. At the same time, it accelerated market access, increased application in emerging industries, expanded cooperation with leading customers, increased market share, and achieved good growth in performance.

In the first half of 2024, the company achieved revenue of 5.016 billion yuan, an increase of 17.85% year on year; net profit to mother was 0.389 billion yuan, an increase of 50.68% year on year. Achieved net profit of 0.373 billion yuan after deduction, an increase of 46.85% over the previous year.

By sector, in the first half of the year, the company's tools sector achieved revenue of 1.959 billion yuan, an increase of 20.90% year on year, the home appliance sector achieved revenue of 1.773 billion yuan, an increase of 18.15% year on year, and the new energy sector achieved revenue of 1.04 billion yuan, an increase of 13.74% year on year. In the new energy sector, the company's controller and component product revenue was 0.362 billion yuan, up 31.39% year on year, and total machine and system revenue was 0.678 billion yuan, up 6.11% year on year.

By market, in the first half of the year, the company's domestic market revenue was 1.778 billion yuan, up 8.78% year on year, and foreign market revenue was 3.238 billion yuan, up 23.50% year on year.

In the 2024Q2 single quarter, the company achieved revenue of 2.698 billion yuan, a year-on-year increase of 19.31%, a record quarterly revenue high, achieving net profit attributable to mother of 0.213 billion yuan, an increase of 31.85% year-on-year, and realized net profit after deducting non-return to mother of 0.204 billion yuan, an increase of 25.18% year-on-year. The exchange rate fluctuated less year-on-year in the second quarter, and non-net profit excluding the impact of exchange gains and losses increased significantly year-on-year.

2. Reduce costs and increase efficiency, and further increase gross margin.

In the first half of 2024, the company's comprehensive gross profit margin was 23.90%, up 2.32pcts year on year. Among them, the gross profit margin of the tool sector was 24.62%, up 1.12 pcts year on year, the gross profit margin of home appliances was 23.13%, up 2.86 pcts year on year, and the gross profit margin of the new energy sector was 22.72%, up 3.69 pcts year on year. The 2024Q2 company's gross profit margin in a single quarter was 24.10%, up 2.80 pcts year on year and 0.45 pcts month over month. The increase in gross margin was mainly due to a recovery in industry prosperity and a friendly supply and demand environment. The company improved overall profitability by increasing cost reduction and efficiency for old businesses, and improving overall profitability through technological innovation and adding new products. At the same time, the gross margin of the export business benefited from a slight devaluation of the RMB in the first half of the year.

In the first half of 2024, the company's expenses for the three periods totaled 0.76 billion yuan, an increase of 14.83% over the previous year. Among them, sales expenses were 0.181 billion yuan, up 26.39% year on year, and R&D expenses were 0.389 billion yuan, up 22.46% year on year, mainly due to increased investment in new businesses and markets. Management expenses were 0.191 billion yuan, down 5.40% year on year, mainly driven by the company's optimization of internal management and improvement of operating efficiency.

3. Continue to promote the global layout and accelerate market expansion.

With the advantages of platform-based enterprises and international operations, the company continues to consolidate its leading edge and accelerate its market expansion. The total revenue of the company's overseas bases in Vietnam, India, Mexico and Romania in the first half of 2024 was 1.011 billion yuan, an increase of 72.65% over the previous year. The share of overseas base revenue in total revenue increased to 20.16%, and the share of the company's export revenue increased to 31.19%.

4. The US is expected to start cutting interest rates, which is beneficial to the release of demand.

The company's controller products are mainly aimed at global home appliances, tools and other fields. Changes in demand are related to real estate demand, manufacturing investment, technology upgrades, inventory, replacement cycles, etc., and are particularly highly related to real estate demand and inventory conditions. Beginning in the fourth quarter of 2023, client warehousing has basically ended, delivery speed has returned to normal, and overall demand has recovered moderately. Currently, it continues to maintain a good recovery trend. The US is expected to start cutting interest rates in 2024, and a series of domestic real estate policies are expected to boost real estate sales, which in turn is expected to further boost demand for intelligent controllers.

5. Investment advice.

Downstream inventories bottomed out in the first half of 2024, and industry sentiment recovered. If the US enters a cycle of interest rate cuts, it is expected to further catalyze demand. With the continuous enrichment of the company's product matrix, the strengthening of the competitiveness of superior products, and the continuous deepening of the company's overseas global layout, the company continues to have a lot of room to increase its market share in the fields of home appliances, tools, and new energy sources. At the same time, the company actively lays out new fields such as AI and robotics, which is expected to drive new growth in the future. Through continuous product innovation, cost reduction and efficiency, etc., the company's profitability is expected to increase further in the future. We expect the company's revenue for 2024-2026 to be 10.65 billion yuan, 12.75 billion yuan, and 15.1 billion yuan, respectively, and net profit to mother of 0.75 billion yuan, 0.96 billion yuan, and 1.2 billion yuan respectively. The corresponding PE is 16x, 13x, and 10x, respectively, maintaining a “buy” rating.

6. Risk warning: Changes in the macroeconomic environment affect consumer demand in the terminal market, the home appliance and power tool business falls short of expectations; market competition intensifies, affecting the company's supply share of major customers, or leading to a decline in the company's gross margin; declining competitiveness of major customers, affecting the company's related business growth rate; trade policy changes affecting the company's raw material supply and product delivery; chip shortage and price increases exceeding expectations, affecting the company's gross profit margin; sharp exchange rate fluctuations affect the company's gross margin and exchange profit and loss; the revenue growth rate of the new energy business falls short of expectations; the gross margin of the new energy business falls short of expectations; the company's production efficiency Upgrades, supply chain optimization, and cost control fall short of expectations, etc.