1H24 results fall short of our expectations
The company announced 1H24's performance: 1) 1H24's operating income was 2.143 billion yuan, -12.7% YoY; net profit to mother was 0.178 billion yuan, +8.1% YoY; net profit not attributable to mother was 0.167 billion yuan, +1.75% YoY. 2) Corresponding to 2Q24, the company's revenue was 1.058 billion yuan, -21.6% YoY, net profit to mother 0.103 billion yuan, +4.7% YoY, net profit not attributable to mother 0.097 billion yuan, or -11.3% YoY. The company's performance fell short of our expectations, mainly due to increased market competition, and the general lighting business was under pressure.
General lighting performance is weak, and the automotive business is progressing steadily. 1) Affected by overseas inventory removal and weak terminal demand, domestic lighting product exports began to weaken in 3Q22, and there is still no significant recovery. According to data from the General Administration of Customs, 2H22/1H23/2H23/1H24 domestic exports of lamps, lighting devices and components (in US dollars) were -12.5%/-2.5%/-8.2%/-2.7%, respectively. 2) The company's general lighting business performance is close to the industry trend. 2H22/1H23/2H23 revenue was -25%/-6%/+2%, respectively. Currently, overseas inventory of lighting products has basically ended, but due to increased industry price competition and the company's contraction in overseas high-risk areas, we estimate that 1H24's general lighting business is still on a downward trend. 3) In terms of automotive business, 1H24's current fixed target is progressing steadily, and new customer expansion is smooth, but due to the decline in structural parts orders, we estimate that 1H24's automotive business revenue declined slightly year-on-year.
Financial analysis: 1) Since 2023, the company has continued to strengthen technology cost reduction, compounding the increase in the share of high-value-added products. 1Q24/2Q24, the company's gross margin was 20.8%/21.5%, respectively, +2.0pp/ +4.2ppt, compared with +2.0ppt/+4.2ppt, continuing the upward trend. 2) The company is still strengthening technical R&D and personnel investment in the automotive business. The 1H24 sales expense rate/management cost rate/R&D expense ratio were 4.1%/4.7%/4.0%, respectively, +0.7/+1.3/+0.8ppt; under the combined influence, 1H24's net profit margin was +1.6ppt to 8.3% year on year, and profitability continued to improve. 3) The net cash flow from 1H24's operating activities is 0.277 billion yuan, which is higher than net profit, and the overall operating quality is stable.
Development trends
The automotive business continues to develop on a targeted basis. According to the company's announcement, the target amounts for new automotive business projects in 2023/1H24 were 1 billion yuan/0.9 billion yuan respectively. Customers such as NIO Auto and Yanfeng Piou were added in 1H24, and targeted expansion of the automotive business accelerated. We believe that with the continuous improvement of the company's capabilities in software and hardware technology research and product quality control for the automotive business, customer coverage is expected to gradually increase, providing a steady growth impetus for subsequent business development.
Profit forecasting and valuation
Taking into account the pressure on the export business of general lighting and the increase in the company's profitability, we lowered our 2024/2025 profit forecast by 6%/8% to 0.392/0.433 billion yuan. The current stock price corresponds to 15.0x/13.6x P/E for 2024/2025. Maintaining an outperforming industry rating and considering the recent upward trend in sector valuation and subsequent automotive business potential, we kept our target price of 15 yuan unchanged, corresponding to 2024/2025 18.3x/16.5x P/E, with an upward space of 21.5%.
risks
Demand for lighting products in overseas markets fluctuates; risk of exchange rate fluctuations; automotive business development falls short of expectations.