Event: The company released its 2024 semi-annual report. Revenue for the first half of 2024 was 3.23 billion, up 20.2% year on year; net profit to mother was 0.42 billion yuan, up 54.0% year on year. In the second quarter, revenue of 1.61 billion was achieved, up 29.2% year on year, down 1.4% month on month. Net profit returned to mother in the second quarter was 0.23 billion, up 44.4% year on year and 21.7% month on month.

Product structure optimization and hot sales drive an increase in gross margin. By product, in the first half of 2024, the company's industrial sewing machine business achieved revenue of 2.8 billion, an increase of 19.1% year on year, and gross margin increased 3.3 percentage points to 30.2%; automatic shirt and denim sewing equipment achieved revenue of 0.1 billion, up 32.8% year on year, and gross margin fell 1.3 percentage points to 37.9% year on year, mainly due to changes in the structure of sales regions; the cutting and paving machine business achieved revenue of 0.32 billion, an increase of 25.3% year on year, and gross margin increased 3.8 Percentage points to 42.4%.

In the first half of the year, the company's comprehensive gross profit margin was 31.8%, up 3.4 percentage points year on year, and the net profit margin was 13.0%, up 2.8 percentage points year on year. This was mainly due to product structure optimization and the increase in revenue share of the explosive “Double King”, compounded by falling costs and exchange rate fluctuations.

Due to exchange rate fluctuations, the financial expense ratio has increased. The company's expense ratio for the first half of 2024 was 17.1%, up 1.0 percentage point year on year. Among them, sales, management, R&D and financial expenses rates were -0.4/+0.1/+1.3 percentage points year on year, respectively; due to exchange rate fluctuations, exchange earnings for the first half of the year decreased compared to the same period last year, and the financial expenses rate increased, and the remaining three rates were relatively stable.

Domestic sales have increased sharply year over year, and overseas demand has improved. In the first half of 2024, the company achieved overseas revenue of 1.45 billion, up 0.9% year on year, and gross margin increased 4.3 percentage points to 36.8% year on year due to exchange rate fluctuations and product structure; domestic business benefited from the company's explosive product strategy and achieved revenue of 1.77 billion, an increase of 42.3% year on year. Gross margin increased 4.0 percentage points to 27.4% year on year due to falling costs and product structure optimization.

Global inflation levels and textile industry business conditions continued to improve in the first half of the year. The momentum to replenish textile and garment stocks in major overseas markets such as the US was actively released, and the phased stabilization and positive trend of industry exports continued to consolidate. According to data from the General Administration of Customs, the cumulative export value of China's sewing machinery products in the first half of the year was 1.601 billion US dollars, up 10.2% year on year. Among them, the export volume of industrial sewing machines was 2.28 million units, and the export value was 0.73 billion US dollars, up 1.5% and 5.3% year on year respectively. Exports of all major products in the industry showed a growing trend, and the sewing machinery industry is entering an upward cycle.

Focus on core categories to create explosive products, with excellent market performance. In the first half of 2024, the company grasped industry recovery opportunities, increased investment in R&D, focused on core categories, and comprehensively enhanced product strength through the “Double King” explosives leadership; at the same time, it also focused on the global promotion of explosives to accelerate the spread of value and market penetration of Kuaiwang, promote the increase in Kuaiwang's market share, and use the Guojiao Wang explosives press conference to stimulate market vitality and drive the growth of various product categories. In 2023, the 616 company's flat seam explosives were released. As of 2024, 616 had sold more than 0.5 million units, sold to more than 170 countries, and the market share of the same type of product reached 45%; in 2024, 616 new products, Wang Fa not only had a 5-hour order of more than 0.48 billion yuan, and the market performance was excellent.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 0.77 billion yuan, 0.99 billion yuan, and 1.22 billion yuan respectively, corresponding to EPS of 1.59, 2.04, and 2.51 yuan respectively. The net profit to mother will maintain a compound growth rate of 31.2% over the next three years, maintaining a “buy” rating.

Risk warning: downstream demand recovery or failure to meet expectations, risk of export and exchange rate changes, risk of fluctuating raw material prices, risk of overseas operations.