Incident: In 2024, the company achieved operating income of 0.86 billion yuan, +1.08% year on year, net profit to mother of 0.068 billion yuan, or -46.46% year on year; of these, 2024Q2 achieved operating income of 0.54 billion yuan, +14.26% year over year, and net profit to mother 0.058 billion yuan, or -28.27% year on year.

The revenue growth rate of the core air bombing business remained stable. Export sales performance was better than domestic sales by category. 24H1's core business air bombing revenue growth rate remained stable, +1.7% over the same period last year. Looking at domestic and foreign sales, 24H1 domestic/export revenue growth rates were -29.1%/+3.3%, respectively. The share of export sales increased further from 93% of 23H1 to 95% of 24H1, and the export sales performance was better than domestic sales. The company is speeding up overseas production capacity. The construction of part of the first phase of the Thai power plant project, which was invested and built by the company's second-level subsidiary, is expected to be completed in the fourth quarter. Currently, preparations for machinery and equipment procurement, customs export, and personnel recruitment have begun. At the same time, the company is actively expanding the rich revenue structure of new categories. New categories such as ice makers and environmental appliances have all been put into production in small batches, and are still continuing to improve and update in line with the improvement needs of different customers and the company's strict control over the quality of its own products.

Overall gross margin is under pressure, and a decrease in exchange earnings affects the net profit level

In 2024, H1's gross margin was 16.84%, -4.79pct year on year, net margin was 7.69%, year-on-year -7.24pct; of these, 2024Q2 gross margin was 19.14%, year-on-year -2.93pct, and net margin was 10.4%, and -6.67pct yoy. By category, the gross margin of the 24H1 core category air bombing was 4.8pct year over year. Looking at domestic and foreign sales, the gross margin of 24H1 domestic and foreign sales was -16.6/-4.2 pct year-on-year, respectively. The company's profit margins are under significant pressure, and we expect this may be due to changes in gross margin due to changes in product structure.

The company's 2024 H1 sales, management, R&D, and financial expense ratios were 0.87%, 3.28%, 3.45%, and -1.32%, respectively, -0.17, +0.16, -0.32, and +1.61pct; of these, the 24Q2 quarterly sales, management, R&D, and finance expenses rates were 0.84%, 2.02%, 2.79%, and -0.92%, respectively, -0.27, -1.58, -1.19, and +5.93pct. The company's financial expense ratio fluctuates greatly, mainly due to a decrease in exchange earnings.

Investment advice: The company's export sales growth rate remains stable, and domestic sales are under pressure due to weak industry demand.

Based on the current business situation, the company is actively expanding overseas production capacity and expanding a rich revenue structure for new categories.

In the future, with the release of new product orders, it is expected to open up a second growth curve for the company. According to the company's report, we appropriately lowered the revenue growth rate and gross profit margin of the air bombing. The estimated net profit for 24-26 was 0.15/0.17/0.19 billion yuan (previous value 0.22/0.25/0.3 billion yuan), and the corresponding dynamic PE was 16.6x/14.8x/13.1x, maintaining the “gain” rating.

Risk warning: New product sales fall short of expectations; private brand sales fall short of expectations; export orders fall short of expectations; rising raw material prices and rising freight costs have led to a decline in profits.