Incident: On August 7, the company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 2.1 billion yuan, +15.7% year on year; net profit to mother 0.25 billion yuan, +282.9% year on year; net profit without return to mother 0.16 billion yuan, +205.4% year over year. 2024Q2 achieved revenue of 1.04 billion yuan in a single quarter, +12.0% year over year and -2.2% month on month; net profit to mother 0.17 billion yuan, +655.5% year over year, +119.9% month on month.
Net profit margin 16.4%, +13.9pct yoy, +9.1pct month-on-month.
Comment:
The company's 24Q2 performance exceeded expectations, and cost control was in place. 2024Q2's net profit to mother (after deducting compensation of 0.09 billion yuan) was 0.08 billion yuan, +278% year over month, +12% month on month; net profit without return to mother was 0.09 billion yuan, +445.4% year on year, +17.8% month on month. In terms of cost ratios, 24Q2's sales/management/R&D/finance expense ratios were 1.1%, 5.8%, 3.5%, and 0.6%, respectively, -0.3 pct/-0.4 pct/-1.4pct/+0.6pct, respectively. The company's internal controls were in place, and the cost rate declined year-on-year during the period.
Looking at gross margin, there is a clear trend of improvement in all sectors of the main business. The company's 24H1 gross margin was 19.9%, +1.5pct year-on-year. By business sector, 1) gross profit margin of 20.9% for interior and exterior and mechatronics, +3.4pct year on year, mainly due to the dilution of various costs such as expanding sales scale; 2) the gross profit margin for wheel bearing components was 21.8%, -2.8 pct year on year, mainly due to reduced exchange earnings and the impact of price reductions on overseas products; 3) the gross profit margin of new energy motors was 13.2%, +11.1pct year on year, gradually entering the normal profit level of the electric drive industry.
Seat drive share advantages are significant, and seat motor customers continue to break through. Seat Drive (HDM) is the company's leading layout segment and has become one of the largest HDM supporting companies in China. The HDM sector has a good profit margin level, benefits from the expansion of market space and increased market share, and is expected to continue to grow in the second half of the year. In terms of seat motors, 23H2's horizontal rail motors have been reviewed by customers such as Freya, Adalto, and Lear, and are now gradually being mass-produced; screw lift motor terminals are used in SAIC and Dongfeng models, and they have been supplied in small quantities in the first half of 2024; side lift motors have been tested to match new products in Dongfeng and BYD models; the electric headrest lift motor assembly has been approved by customers through development in the first half of the year, and the 2024H2 will gradually be mass-produced in domestic Xiaopeng models.
Wheel bearing unit technology has been deeply accumulated, and overseas factory+new energy front equipment support is expected to contribute to the increase. Wheel bearings are supplied to overseas aftermarkets and the front assembly market of domestic high-end car companies. In terms of overseas expansion, the company has invested in the construction of the new Torch Thailand plant overseas, and has laid out three production lines to achieve localized production throughout the process. In May 2024, mass production was achieved in small batches. Major customers include Autozone, AAP, NAPA, CRS, GRD, etc.; at the same time, the company accelerated its layout in the field of new energy, and obtained many new projects such as Avita, Jikrypton, Dongfeng Nissan, SAIC Audi, and Xiaopeng in 2024.
The electric drive sector turned a loss into a profit, and the transmission business continued to lose money. The company's main customers in the electric drive sector include Wuling, Chery, Changan, etc. At the same time, it has also newly obtained the BAIC Foton Motor Project and the Wuling Commercial Vehicle Motor Electronic Control 2-in-1 Electric Bridge Project. Mass production of high-power flat wire motors will begin in September 2023, and profit margins are expected to increase further. The scale of R&D personnel in the gearbox business continues to shrink, and the sector continues to reduce losses. We believe the impact on the company's overall profit is limited.
Actively optimize the product structure and expand the automotive and robot ball screw business. The company plans to gradually develop products from EHB line control to ball screw bearings for EMB line control, ball screw bearings for steering, and roller screw products for humanoid robots. It has completed sample testing of automotive ball screws, and is expected to achieve the EHB braking ball screw bearing PPAP (project target) in December 2024. The company is actively exploring the application space of ball screws. With its new business, it is expected to enter the humanoid robot circuit and open up new growth space.
Profit forecast: The restoration of the company's main business continues to exceed expectations, and the ball screw business opens up room for growth. We estimate that the company's net profit for 2024-2026 will be 0.424 billion yuan, 0.364 billion yuan, and 447 million yuan, respectively, and the corresponding EPS will be 1.06, 0.91, and 1.12 yuan, respectively, corresponding to PE 12 times, 14 times, and 11 times, respectively.
Risk factors: New product development falls short of expectations, price increases for upstream raw materials, etc.