Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 2.143 billion yuan, a year-on-year decrease of 12.70%, and net profit to mother of 0.178 billion yuan, an increase of 8.05% year-on-year, after deducting non-net profit of 0.167 billion yuan, an increase of 1.75% year-on-year. 2024Q2 achieved revenue of 1.058 billion yuan, a year-on-year decrease of 21.61%, and net profit to mother of 0.103 billion yuan, an increase of 4.67% year-on-year.

The automotive business is developing steadily, and the project continues to expand on a targeted basis. In the first half of 2024, China's automobile production and sales reached 13.891 million vehicles and 14.047 million units respectively, up 4.9% and 6.1% year-on-year respectively, continuing the growth trend of recent years. The NEV market share continues to rise rapidly, reaching 35.2% in the first half of the year, and the automobile market consumption trend is undergoing profound changes. The company continues to focus on the field of “automotive lighting+vehicle controller”, and added a target of nearly 0.9 billion yuan for new projects in the first half of the year. Currently, the company's customers include Panasonic, Huayu Vision, Wanxiang, Marelli, Hella, Sanli, Yanfeng Biou, Valeo, Elios, and Lingwei Vision. The terminal brands involved include Porsche, Audi, Volkswagen, Nissan, Daihatsu, Toyota, Guangzhou Automobile, Ideal, Zero Run, Changan, Geely, NIO, Chery, etc., and customer recognition is constantly increasing.

Structural improvements have boosted gross profit margins, and there is still room for cost reduction and fee control. The company actively increases the sales share of high-value-added lighting products, actively reduces the market business scale in high-risk areas, increases the level of automation of general lighting production bases, promotes capacity growth through new production lines and automated transformation of original production lines, and implements refined management of the supply chain supply chain. At the same time, profitability has improved markedly thanks to favorable factors such as falling raw material prices. In the first half of 2024, the company's gross sales margin reached 21.12, up 3.19 pcts year on year, the net profit margin was 8.27%, and the year-on-year increase was 1.53 pct; of these, the Q2 single quarter gross profit margin was 21.45%, up 4.21pct year on year, and the net profit margin was 9.54%, up 2.2 pcts year on year. In terms of cost ratios, the company's sales/management/R&D/finance expenses in the first half of 2024 were 4.09%/4.70%/3.99%/-2.12%, respectively, with year-on-year changes of 0.68/1.29/0.79/-0.77pct, respectively. Among them, changes in management expenses were mainly due to increased travel expenses and depreciation expenses, and changes in R&D expenses were mainly due to increased R&D investment in the automotive business.

The automotive business is booming, helping the company create a second growth curve. In the first half of this year, the company received project targets from Yanfeng Biou and NIO Auto in turn. Among them, the project cycle is 2024-2028, with a total amount of about 0.075 billion yuan; the project period is 2024-2028, and the total amount is about 0.075 billion yuan; it supplies headlight controllers for NIO. The project period is 2025-2028, with a total amount of about 0.143 billion yuan. The company is steadily promoting partnerships with new energy vehicle companies, and the development of the vehicle controller business is expected to accelerate further.

Investment suggestions: The company actively promotes the development of the automotive business, continuously improves R&D capabilities and technical levels, promotes product innovation and industrial technology upgrading, and focuses on creating new growth points. We expect the company's net profit to be 0.417/0.466/0.511 billion yuan from 2024 to 2026, and EPS to be 0.87/0.98/1.07 yuan, respectively. The corresponding PE is 14/13/12 times, respectively, maintaining the “recommended” rating.

Risk warning: Risk of fluctuating raw material prices; risk of new business not progressing as expected.