1H24 results are in line with our expectations

The company announced 1H24 results: 1H24 revenue 1.117 billion yuan, +15.3% year over year; net profit to mother 0.158 billion yuan, +74.9% year over year; net profit after deducting non-return to mother 0.158 billion yuan, +88.3% year over year. Corresponding to 2Q24 revenue of 0.63 billion yuan, +15%/28% YoY; net profit to mother 0.081 billion yuan, +54.2%/4.6% YoY; net profit of 0.08 billion yuan after deducting non-return to mother, +57.5%/4.6% YoY. The results were in line with our expectations.

Development trends

The core customer SAIC Motor is under pressure, and new customers and the electroplating business are increasing their contributions. By business, stamping/splitting assembly/electroplating revenue was 0.61/0.2/0.09 billion yuan, +13.7%/-16.5%/+116.3% year-on-year. According to the Passenger Federation data, the 1H24 core customer SAIC Motor's total passenger car sales volume was 0.6178 million units, -6.7%/-30.2% month-on-month; SAIC Motor exported 0.2397 million vehicles, +11.1%/-4.1% month-on-month; Tesla China sold 0.4266 million vehicles, -10.5%/-9.5% month-on-month. The decline in core customer sales led to relative pressure on the split assembly and part of the stamping business. Revenue growth is mainly due to: 1) the volume of new customers such as Xiaomi and Ideal exceeded expectations. The 1H24 Xiaomi SU7/Ideal L6 sold 3.04 /0.0392 million units, and sales reached 0.0121/0.0239 million units in a single month in June; 2) Bosch stock replenishment led to a year-on-year increase in the electroplating business.

The decline in the scale of the segmentation business has put pressure on overall profitability, and cost control continues to be optimized. On the profit side, 1H24 gross profit margin was 24.5%, corresponding to 2Q24 gross profit margin of 23.7%, month-on-month ratio -1.3/-1.8ppt; by business, the gross profit margin for stamping/sub-assembly/electroplating was 16.0%/19.4%/81.8%, compared to +7.4/-22.1/+2.4ppt in 2023. We believe that the increase in stamping gross margin mainly benefits from falling raw material prices, improved customer structure, and payment of customer raw material differences; the sharp decline in gross margin of split assembly is mainly due to obvious economies of scale under the net value method and a sharp decline in business scale. Cost reduction and fee control continued to advance. The total cost rate during the 2Q24 period was 8.2%, -1.2/-0.8ppt compared to the previous month, of which the management fee ratio was -1.5/-0.6ppt compared to the previous month.

New customers are expected to drive growth, and the electroplating business nurtures long-term growth points. 1) Welding business: The model cycle outlook for leading new power customers such as Xiaomi and Ideal is positive, including Xiaomi's new pure electric SUVs and ideal pure electric series models. We are optimistic that the company will continue to deepen cooperation and grow with customers by relying on good customer relationships, nearby support, and cost advantages. 2) Electroplating business: According to the 23rd annual report, the company has electroplating platform technology and is currently the core supplier of Bosch's electrojet electroplating process. We expect the company's electroplating business to gradually expand horizontally into automotive electronics, new energy batteries, etc., creating a second growth curve.

Profit forecasting and valuation

Considering that SAIC's sales volume from core customers may continue to be under pressure, we lowered our 2024/2025 profit forecast by 6.3%/3.7% to 0.35/0.42 billion yuan. The current stock price corresponds to 2024/2025 11.3/9.4x P/E. Maintaining an outperforming industry rating, considering the downturn in performance compounding the downward revision of the industry's valuation center, and lowering the target price by 24.2% to 22.5 yuan, corresponding to 16.0/13.4x P/E in 2024/2025. There is 42.23% upside compared to the current stock price.

risks

Model updates fell short of expectations; production capacity fell short of expectations; parts customer expansion fell short of expectations.