1H24 results fell into the central forecast range and exceeded our expectations

The company announced 1H24 results: revenue of 5.45 billion yuan, up 10.8% year on year; net profit to mother of 0.65 billion yuan, up 27.4% year on year, after deducting non-net profit of 0.63 billion yuan, up 26.7% year on year, falling into the central forecast range and exceeding our expectations, mainly due to the company's steady market position and profitability. Looking at a single quarter, 2Q24's revenue was 2.94 billion yuan, up 13.4% year on year, and net profit to mother was 0.34 billion yuan, up 27.0% year on year. After deducting non-net profit of 0.33 billion yuan, the year-on-year increase was 26.3%.

The level of profit is stable. The consolidated gross margin of 1H24/2Q24 was 23.1%/23.8% respectively, up 0.1 ppt/year on year and remained flat, up 1.6 ppt from month to month in the second quarter. The cost rates for the 1H24/2Q24 period were 9.1%/9.2%, respectively, -0.3pp/ -0.6ppt, respectively. Among them, 1H24's sales/management/R&D/finance expense ratios were flat year-on-year /-0.2pp/ -0.2ppt, respectively. 1H24/2Q24 The company's net interest rate to mother was 11.9%/11.6%, respectively, +1.6pp/+1.2ppt compared to the previous year. The amount of VAT deductions added to other income increased significantly year-on-year.

Net cash flow inflows from operations increased, and fixed assets grew steadily. The net cash flow from 1H24's operating activities was 1.92 billion yuan, an increase of 1.35 billion yuan over the previous year, mainly due to the increase in bill maturity payments and discounts.

The book value of the company's fixed assets at the end of 1H24 was 6.83 billion yuan, an increase of 0.38 billion yuan over the end of 2023.

Development trends

Maintain steady profitability under competitive pressure in the industry. According to the China Automobile Industry Association and the China Automobile Power Battery Industry Innovation Alliance, the sales volume of 1-7M24 new energy vehicles in China was 5.934 million vehicles, up 31.1% year on year, and the cumulative load volume of power batteries was 244.9 GWh, up 32.8% year on year. Currently, competition in the industry is still fierce. Under pressure such as falling prices, the company still maintains relatively steady profitability and market share. We believe this reflects the company's strong cost control ability and comprehensive competitiveness. We are concerned that in the future, as downstream customers promote new technology or products, the company's corresponding matching ability and corresponding performance will grow.

Pay attention to the number of customers in overseas markets and the construction process of new bases. 1H24's overseas revenue was about 0.3 billion yuan, up 11.4% year on year, accounting for about 5.4% of revenue. Considering that the company has set up production bases in Sweden, Germany, and Hungary (continuing to expand), we recommend that customers in overseas markets pay attention to the gradual expansion process to support the increase in the company's overseas business revenue. At the same time, the company plans to invest in the construction of a production base for precision structural components of new energy power batteries in the US to lay out the US market. We believe this is expected to further improve the company's overseas business layout and focus on future new base construction and revenue fulfillment process.

Profit forecasting and valuation

Keep outperforming industry ratings and profit forecasts unchanged. Currently trading at 14.3x/12.2x 2024/2025 P/E. Maintain the target price of 105.00 yuan, corresponding to 20.5x/17.6x 2024/2025 P/E, with 43.6% upside.

risks

Sales of new energy vehicles fell short of expectations, increased competition in the industry exceeded expectations, and overseas expansion fell short of expectations.