Key points of investment:

The company's revenue performance was outstanding. Ousheng Electric 2024H1 achieved revenue of 0.739 billion yuan, +55% year over year, and realized net profit of 0.097 billion yuan, or +47% year over year; of these, Q2 achieved revenue of 0.413 billion yuan in a single quarter, +78% year over year, and realized net profit of 0.054 billion yuan, or +15% year over year. The company's revenue performance was outstanding, in line with our expectations, and operating cash flow was abundant.

The high-margin business model's revenue is growing rapidly, and its core advantages are remarkable. By business model, the growth rate of the company's brand licensing model is expected to be 30-40%, and the ODM model has a higher growth rate. The company's brand licensing model is stable for large customers, the ODM model has strong R&D and design capabilities, and the OBM model has developed rapidly. The company has established a stable retailer customer system and sales channels, and the warehousing center built in the United States can provide fast supporting services. Brand licensing model: After years of market development, the company has obtained licenses from many internationally renowned brands in the tool industry, and has established stable cooperative relationships with dozens of internationally renowned retailers such as Walmart, Lowe's, The Home Depot, and Costco. The company also has overseas warehousing centers in the US and is equipped with professional after-sales service teams. OBM model: The level of gross profit is high, and will increase rapidly in 2023 with the development of high-end products from independent brands. ODM model: Outstanding R&D experience and technology, product quality recognized by customers. As of the first half of 2024, the company has authorized 331 valid patents, including 98 invention patents, establishing the company's leading position in product performance, quality and motor efficiency. By product, the company's wet and dry vacuum cleaner revenue was +39% year over year, and air compressor revenue was +72% year over year, and gross margin both increased markedly. By region, the company's share of the North American market is expected to decline slightly during the year. Exploring new regions such as Europe and Latin America, the incremental contribution is obvious, and long-term growth can be expected.

Increased gross margin benefits from product structure upgrades, and sales expenses increase as scale expands. Benefiting from structural upgrades brought about by an increase in the share of high-end products, compounded by a decrease in procurement costs for some raw materials, the company's 24H1 gross margin increased 4.21pcts year-on-year to 36.09%. In terms of cost control, the company is in an emerging market development period, so the sales expense ratio has risen, from 12.24% to 13.17% in 2023H1. The management expenses rate and R&D expenses rate have declined. This is a normal fluctuation. Due to the large depreciation of the RMB against the US dollar in the same period last year, the exchange earnings base has increased, and the financial expense ratio increased during the year.

Maintain profit forecasts and “buy” ratings. The company is a leading global supplier of air compressors and vacuum cleaners. The main customers are overseas retailers. 24H1 revenue performance is growing rapidly. The second half of the year is the peak sales season. We maintain profit forecasts. We expect the company to achieve net profit of 0.24/0.33/0.4 billion yuan in 24-26, up 38%/36%/22% year over year, respectively. The corresponding PE is 14/11/9 times, respectively, maintaining a “buy” rating.

Risk warning: risk of sluggish overseas demand; risk of customer development falling short of expectations; risk of exchange rate fluctuations.