Incident: On August 19, the company released its 2024 mid-year report. 1H24 achieved revenue of 1.427 billion yuan, YOY -9.6%; net profit to mother of 0.164 billion yuan, YOY -35.2%; deducted non-net profit of 0.155 billion yuan, YOY -36.2%. The performance was in line with market expectations. Affected by fluctuations in industry sentiment, the company's downstream demand recovery process is still slow, and the company's 1H24 revenue declined year-on-year in order to consolidate market share and adjust prices for some products.
Net profit attributable to mother increased sequentially for 2 consecutive quarters; the trend of improvement was clear from quarter to quarter. 1) Revenue side: 2Q24 achieved revenue of 0.775 billion yuan, a year-on-year decrease of 17.2% and a month-on-month increase of 19.0%. This is the first time in nearly 3 quarters (4Q23-2Q24) that it has experienced month-on-month growth. 2) Profit side: From 3Q22 to 2Q24, the company's net profit to mother declined year-on-year for 8 consecutive quarters, but 1Q24's net profit improved significantly month-on-month, reaching a month-on-month growth rate of 182.0%; 2Q24 continued to improve month-on-month, and net profit to mother increased 21.1% month-on-month. 3) Profit margin:
1H24 gross margin fell 6.4ppt to 32.9% year over year; net margin fell 5.4ppt to 11.1% year over year.
Subsidiaries such as Fujian Millimeter and Tianji Technology achieved business breakthroughs. By product, 1H24:1) Self-produced components business: achieved revenue of 0.54 billion yuan, YOY -17.36%. Among them, the parent company achieved a steady increase in the number of orders, but the number of specifications shipped decreased year-on-year, so overall performance showed a downward trend. Since 2018, Fujian mm has gradually transformed from a trade business model to a “trade+self-production and self-sales model”. 1H24 self-production business revenue increased 16% year over year. In the context of increasingly fierce competition in the microwave chip capacitor market, Tianji Technology actively promoted the “replacement” of the thin-film circuit business. 1H24 thin-film circuit revenue increased 11.33% year-on-year. 2) New materials sector business: achieved revenue of 65.74 million yuan (including R&D service revenue), YOY -15.13%. 3) International trade business: achieved revenue of 0.81 billion yuan, YOY -3.40%.
Increase investment in R&D; explore core technologies for the localization of raw materials. The 1H24 company's expense ratio increased by 2.4ppt to 19.0% year on year: 1) the sales expense ratio increased by 0.3ppt to 5.0% year on year; 2) the management expense ratio increased by 2.2ppt to 9.6% year over year; 3) the financial expense ratio was 0.8%, 1H23 was 0.9%; 4) the R&D expense ratio decreased by 0.1 ppt to 3.6% year on year. In 1H24, the company invested 50.979 million yuan in R&D expenses, accounting for 8.41% of the main business revenue of self-production. The company continues to carry out core technical research with many domestic and foreign electrode paste and porcelain powder suppliers to provide technical support for the localization of raw materials for existing products. By the end of 2Q24, the company: 1) accounts receivable and notes were $1.623 billion, down 8.8% from the end of 1Q24; 2) inventory was $1.305 billion, down 0.3% from the end of 1Q24; and 3) contract liabilities were $0.006 billion, up 33.5% from the end of 1Q24. 4) The project under construction was 0.093 billion yuan, a decrease of 75.0% compared to the end of 1Q24, mainly due to the renovation of the Zihuayuan Plant (Phase I). 1H24 net cash flow from operating activities was $0.49 billion, YOY -14.0%.
Investment suggestions: The company is a leading enterprise in special MLCC, laying out active power devices to create core competitiveness; ceramic-based composites have large-scale production capacity, which is expected to open up new space for growth; international trade expands the Southeast Asian market and gradually creates benefits. We expect the company's net profit from 2024 to 2026 to be 0.375 billion yuan, 0.438 billion yuan, and 0.505 billion yuan, respectively. The current stock price corresponding to 2024-2026 PE is 29x/25x/22x.
We maintain a “Recommended” rating based on the company's position in the industry and the growth of new businesses.
Risk warning: downstream demand falls short of expectations; new product development falls short of expectations, etc.