Key points of investment

The company announced its 2024 mid-year report: 24H1 revenue of 2.296 billion yuan/yoy +25.57%, net profit to mother of 0.416 billion yuan/yoy +37.79%. Performance growth exceeded expectations. Profit growth was faster than revenue mainly due to higher gross margin, lower expenses, and increased government subsidies. Looking at a single quarter, 24Q1/Q2 revenue was 0.801/1.132 billion yuan, respectively, +14.83%/+32.07%, respectively, and net profit to mother was 0.078 billion yuan/0.338 billion yuan, respectively, +45.25%/+36.29%, respectively. Strong Q2 orders were received, revenue growth accelerated month-on-month, and profit growth slowed mainly due to the year-on-year decline in exchange earnings in Q2.

All categories achieved relatively rapid growth, and the international market grew slightly faster than the domestic market. 1) By product, 24H1 zippers/buttons/other apparel accessories/other revenue was +24.0%/+27.1%/+23.2%/+52.2%, respectively, and revenue accounted for 54.8%/40.4%/3.3%/1.5%, respectively. Orders in various categories grew rapidly, driven by downstream inventory demand and a continuous increase in company share. 2) By region, 23H1 domestic/international revenue was +24.8%/+27.2%, respectively, and revenue accounted for 67%/33% respectively. The international market grew slightly faster than the domestic market. Benefiting from the continuous advancement of the company's internationalization strategy, the Vietnam factory began operation in March '24.

The gross margin increased, the expense ratio decreased, and the net profit margin to mother increased. 1) Gross profit margin: 24H1 +0.58pct to 41.80%, of which zipper/button gross margin was +0.34pct/+0.27pct to 42.89%/42.09% year over year, respectively. We judge that the 24H1 capacity utilization rate increased 13.6 pct to 70.7% year over year, mainly driven by increased orders and increased capacity utilization. 2) Period expense ratio: The cost rate for the 24H1 period was -0.95pct to 20.06% year on year, with sales/management/R&D/finance expenses ratios +0.12/-0.68/ -0.14pct to 7.97%/9.07%/3.61%/-0.59%, respectively. The increase in the sales expense ratio was mainly due to good performance in the first half of the year, the salary increase of relevant personnel, and the decrease in the management expense ratio was mainly due to the end of the first four phases of the equity incentive plan, the decline in incentive expenses, and the decrease in the financial expense ratio was mainly due to the increase in interest income. 3) Other profit and loss items: 24H1 government subsidy of 19.87 million yuan, an increase of 12.26 million yuan over the previous year. 4) Net profit margin to mother: 24H1 +1.6pct year-on-year to 18.11%.

Profit forecast and investment rating: The company is a leading domestic apparel accessories company. 24H1 has benefited from the release of downstream customer demand and the company's continuous expansion of new customers and increased customer share, and its performance has exceeded expectations. Looking ahead to the second half of the year, as customer demand for inventory replenishment is fully released, the overseas consumption environment is weak, and the 23H2 base rises, we expect our annual results to show high and low characteristics, but we expect our performance to continue to be better than our peers under the guidance of our own competitive advantage and internationalization strategy. Considering that the results for the first half of the year exceeded expectations, we raised net profit to mother from 0.656/0.751/0.833 billion yuan to 0.695/0.803/0.919 billion yuan, corresponding to PE20/17/15X, maintaining a “buy” rating.

Risk warning: weak downstream demand, exchange rate fluctuations, etc.