Incident: Changhong Meiling released its 2024 semi-annual report. In 2024H1, the company achieved revenue of 14.95 billion yuan, YoY +16.5%; realized net profit of 0.42 billion yuan, YoY +15.9%; realized net profit without deduction of 0.43 billion yuan, YoY +13.2%. After conversion, in 2024Q2, the company achieved revenue of 9.01 billion yuan, YoY +15.4%; realized net profit due to mother 0.26 billion yuan, YoY +10.2%; realized net profit deducted from non-mother 0.25 billion yuan, YoY -11.5%. We believe that domestic and foreign sales of Q2 Changhong Miling air conditioners continued to grow rapidly, the refrigerator and freezer business performance was stable, and the operating performance was steady in a single quarter.

Q2 revenue continued to grow rapidly in a single quarter: by product: 1) H1 Changhong Meiling Air Conditioning's revenue YoY +21.5%. We speculate that Q2's domestic and foreign air conditioning sales will continue to grow rapidly. For reference, industry online data shows that in Q2 Changhong Air Conditioner's internal and export sales volume YoY was +24.5% and +42.9%. The company continues to improve channels and product layout in the domestic market, and has benefited from the increase in the market share of OEM customers; the air conditioning boom in Latin America and the Middle East is high, and the company is expanding into new markets and new customers at an accelerated pace. 2) H1's refrigerator and freezer business revenue YoY +12.2%. The company promotes the upgrading of refrigerator products in overseas markets and benefits from the advantages of the domestic supply chain. We speculate that Q2's refrigerator export revenue will grow steadily. According to industry online data, Q2 Meiling refrigerator internal and export sales volume YoY -4.5% and +5.8%. Looking ahead, the company will continue to improve domestic channels and accelerate the expansion of overseas markets, and revenue is expected to continue to rise.

Q2 gross margin declined year-on-year: Q2 Changhong Meiling's gross profit margin was 9.9%, -1.8pct year on year. The company's gross margin declined year-on-year in a single quarter. We infer that it was mainly due to increased competitive pressure on domestic air conditioning prices in Q2, and the price of raw materials rose. According to Aowei Cloud Network data, the average price of Q2 Changhong air conditioning online/offline YoY is -22.0%/-1.6%.

Q2 profitability declined slightly year on year: Q2 Changhong Miling's net interest rate was 2.9%, -0.1 pct year on year. The decline in the company's net interest rate was lower than the decline in gross margin, mainly because: 1) The company adheres to a value-oriented and comprehensive management approach and continues to improve capital efficiency, channel efficiency, product efficiency, and management efficiency. The cost rate for the Q2 period was -0.5 pct year on year, of which the sales and management expenses ratio was -0.4 pct and -0.4 pct year over year. 2) Affected by non-main business, the ratio of Q2 fair value change income, credit impairment loss, and other income to revenue was +0.7 pct, +0.4 pct (reduction in credit impairment losses), and +0.3 pct, respectively.

In the future, as the company continues to be value-oriented and gradually improves operating efficiency, the company's profitability is expected to improve steadily.

Q2 net operating cash flow increased year-on-year: Changhong Meiling Q2 net operating cash flow +2.84 billion yuan, YoY +59.5%. The company's operating cash flow improved year-on-year, mainly due to the recovery in revenue scale, and the YoY of cash received from sales of goods and provision of labor services in Q2 +26.9%.

Q2 The company's contract debt balance was 0.39 billion yuan, YoY +11.1%, indicating that downstream customer expectations are positive. At the end of the period, the balance of the company's monetary capital+transactional financial assets was 10.14 billion yuan, YoY +25.5%, and cash reserves were quite abundant.

Investment advice: Changhong Meiling's product layout is diverse, and domestic and foreign sales are developing collaboratively. The company continues to implement the “one goal, three main lines” business policy, and the scale of revenue and profitability are expected to continue to increase. The company's EPS for 2024 to 2026 is expected to be 0.83/0.99/1.14 yuan respectively, maintaining a buy-A investment rating, giving the company a dynamic price-earnings ratio of 12 times in 2024, which is equivalent to a 6-month target price of 9.94 yuan.

Risk warning: Increased industry competition, sharp rise in raw material prices, risk of overseas trade conflicts