1H24 is slightly lower than we expected
The company announced 1H24 results: revenue +16% to 4.87 billion yuan, and net profit to mother +13% to 0.268 billion yuan, slightly lower than our and market expectations, mainly due to increased pressure on high-altitude vehicle operations.
1) The high-altitude vehicle sector continues to grow: 1H24's high-altitude vehicle management scale increased from 0.178 million units at the end of 23 to 0.205 million units (+30% compared to 1H23; its own scale increased from 0.121 million units at the end of 23 to 0.131 million units, and the subleasing scale increased from 0.057 million to 0.073 million units), but due to 1H24's rental rate -7.9ppt to 66% year-on-year, and rent There was also a year-on-year decline. We estimate that high-altitude vehicle revenue was +~ 15% year over year, with revenue from the subleasing aerial vehicle segment +~ 150% to 0.74 billion yuan year-on-year. 2) Rapid growth in engineering technology services: The company increased engineering contracting, driving the 1H24 rental rate of support systems and mold frame systems +1.9/+5.7ppt to 67%/76% year-on-year, and engineering technology service revenue +71% to 1.95 billion yuan year-on-year. 3) Gross margin was slightly under pressure: 1H24 comprehensive gross margin was -2.1ppt to 32% year over year, of which operating leasing services/asset management and other services gross margin was -2.5/-5.3ppt to 37%/32% year over year, but engineering technology service gross margin was +6.3ppt to 27% year over year. 4) Increased sales expenses and reduced financial expenses: the 1H24 period cost ratio was -2.9ppt to 25.8% year over year, with sales expenses +116% (corresponding sales expense ratio +2.5ppt) due to increased overseas investment and labor packages, etc., and the financial expense ratio was -3ppt to 7.8ppt (1H24 financing cost -0.38ppt to 3.99% year over year); 5) EBITDA increased slightly, and profit margin declined: 1H24 company EBITDA +2% to 2 billion yuan YoY ( Corresponding to EBITDA profit margin -5.6ppt to 41% year over year), net profit was +13% year-on-year due to depreciation policy adjustments at the beginning of the year; 6) Operating cash flow remained stable and capital expenditure was high: net operating cash flow +4% to 1.35 billion yuan, capital expenditure +3.43 billion yuan to 4.37 billion yuan; 7) The balance ratio increased slightly:
Due to increased capital expenditure, the balance ratio increased by 3.2ppt to 68.7% compared to the end of the year; 8) Dividend payment: The company announced a dividend of HK$0.05 in October.
Development trends
Domestic high-altitude vehicles are rapidly integrated, and overseas business is booming. Looking forward to the future, we believe that due to the rapid increase in the domestic supply of high-altitude vehicles, the rental rate and price pressure will increase, and it will be difficult for small and medium-sized enterprises in the industry to survive. The company will continue to bottom out in a short period of 1-2 years. The company will use this to increase industry integration, manage vehicles from other enterprises, and increase market share. Overseas, the company is actively going overseas (it already has an asset size of 1 billion yuan and a team of 400 people). We are optimistic that overseas will become a new growth and high profit point for the company in the future.
Profit forecasting and valuation
Due to demand pressure, the company's 2024/25e net profit was reduced by 21%/24% to 1.05/1.16 billion yuan. The current stock price corresponds to the 24/25 EV/EBITDA of 4.3x/4.0x. Considering the company as an industry leader and low valuation, we maintained an outperforming industry rating; due to low market risk appetite, the target price was lowered by 33% to HK$2, corresponding to the 24/25 EV/EBITDA of 4.7x/4.3x, implying 35% upward space.
risks
The high-altitude vehicle sector is under increasing operating pressure, and overseas expansion falls short of expectations.