Incident: On August 9, 2024, Biyi Co., Ltd. published its 2024 semi-annual report. 2024H1's revenue was 0.86 billion yuan (+1.08%), net profit attributable to mother was 0.068 billion yuan (-46.46%), and net profit not attributable to mother was 0.067 billion yuan (-42.45%). Looking at a single quarter, 2024Q2's revenue was 0.54 billion yuan (+14.26%), net profit attributable to mother was 0.058 billion yuan (-28.27%), and net profit not attributable to mother was 0.057 billion yuan (-24.35%).

Revenue side: The 2024H1 air bombing category has grown steadily, and the share of export sales has further increased. 1) By product, the revenue of 2024H1's air fryers and air ovens/deep fryers was 0.781/0.055 billion yuan respectively, +1.68/ -8.31% year-on-year, respectively. Air fryer products grew steadily, and fryer revenue narrowed. 2) By region, the overseas and domestic revenue of 2024H1 was 0.817/0.041 billion yuan respectively, +3.35/ -29.11% year on year, respectively, and the share of export sales increased to 94.98% (+2.09pct). Leading customer Versuni (Philips) products were put into production simultaneously to deepen cooperation, new customers were actively contacted, and the regional market continued to expand.

Profit side: 2024Q2's profitability recovered significantly from month to month, and was under pressure in the short term compared to the previous year. 1) Gross profit margin:

The 2024Q2 gross profit margin was 19.14% (-2.93pct year over year), or due to the low profit level of major customers in the early stages of production of new orders, but there was a significant improvement (+6.19pct) compared to Q1; 2) Net profit margin:

The 2024Q2 net interest rate was 10.40% (-6.67pct year on year, +7.28pct month-on-month), which was greater than the gross profit margin, or an increase on the cost side; 3) Expense side: 2024Q2 sales/management/R&D/finance cost rates were 0.84/2.02/2.79/ -0.92%, respectively, -0.27/-1.58/-1.19/+5.92pct, respectively. Production management efficiency improved, and the financial expense ratio increased due to higher exchange earnings in the same period last year.

Production capacity construction is progressing at an accelerated pace, and R&D investment has been further increased. 1) Production capacity: By 2024H1, all plants in the Sino-Italian Industrial Park Smart Kitchen Appliance Project have entered key ground-level construction nodes, and the construction of part of the first phase of the overseas Thai project is expected to be completed in 2024Q4. 2) R&D: The company is actively building its own AI smart platform and deepening intelligent innovation; it plans to invest 10 million yuan with its own capital to establish a wholly-owned subsidiary “Foshan Anyi Innovation Co., Ltd.” to increase R&D investment to focus on technological innovation and enable long-term leadership in the healthy development of the industry. 3) Product: Actively lay out potential tracks for ice makers, environmental appliances, etc., and small-batch production has been achieved by 2024H1.

Investment advice: On the industry side, intelligent upgrades are expected to drive a continuous increase in the scale of air bombing, and the blue ocean circuit for coffee machines has broad prospects. On the company side, the construction of its own AI smart platform may continue to enhance the competitiveness of all products. It looks forward to the acquisition of the Zhuolang brand to increase the layout of drinking water series products, and further enhance the performance of coffee machines. We estimate that in 2024-2026, the company's net profit to mother will be 0.191/0.208/0.269 billion yuan, and the corresponding EPS will be 1.01/1.10/1.43 yuan, respectively. The PE corresponding to the current stock price is 13.09/12.00/9.29 times, respectively. First coverage, giving a “buy” rating.

Risk warning: rising raw material and labor costs, management risks due to business scale expansion, downstream demand fluctuations, exchange rate fluctuations, technology and market risks, etc.