1H24 results are in line with our expectations

The company announced 1H24 results. Revenue reached 0.67 billion yuan, a decrease of 5.7%, and net profit to mother reached 0.2 billion yuan, a decrease of 9.1%. The performance was in line with our expectations. On a quarterly basis, 1Q/2Q revenue decreased 4.6%/6.7%, respectively, and net profit to mother was +0.9%/-17.2%, respectively.

Development trends

1. Under the influence of the pace of shipment and exchange, Q2 performance was under pressure in the short term. Sufficient orders on hand and the volume of new products released helped 2H24 grow faster. The company's 1H24 overseas/domestic revenue was -7.9%/+16.7%, respectively, of which Q2 revenue fell 6.7% to 0.35 billion yuan. We believe that the main reason was that shipping pace adjustments affected revenue recognition due to fluctuations in sea freight rates, and foreign exchange also had a negative impact, causing the revenue side to be pressured in the short term based on a high base. Looking ahead, according to an announcement from leading global ticketing company Live Nation, global demand for performing arts events continues to grow. Demand for global fans reached a record high in Q2. As of mid-July, stadiums, amphitheaters, etc. have confirmed double-digit growth in the number of large-scale performances. We believe that with the intensive schedule of performing arts events at home and abroad, downstream demand for 2H24 stage lighting is expected to continue to be strong. As new product shipments improve, new production capacity continues to climb, and new customers are successfully acquired, business growth is expected to accelerate in the second half of the year.

2. Gross margin remains high, reduced exchange earnings drag down profitability in the short term, and increased R&D investment escorts medium- to long-term growth. The company's Q2 gross margin achieved 51.1%, up 1.4ppt year on year. As shipments of new high-margin laser products and the like improved, the company's gross margin increased steadily; on the cost side, the company's Q2 sales/management/R&D/finance expenses ratio was +0.4pp/+2.3pp/+3.2ppt, respectively. The company continued to increase R&D investment and sufficient differentiated technology reserves, which is expected to help the global share continue to increase, and the financial expense ratio will increase as exchange revenue decreases. Under the combined influence, the company's Q2 net profit margin reached 29%, a year-on-year decrease of 3.7 ppt.

3. Optimistic about the company's accelerated growth trend as the global stage lighting leader 2H24, which is expected to rise in endogenous+epitaxial collaboration in the medium to long term. In the short term, we expect that as global stage lighting demand continues to be high, the company's on-hand orders are expected to continue to be strong in the second half of the year, and production capacity release, new high-end products are expected to support accelerated performance growth; in the medium to long term, as a global stage lighting leader, leading in production, research, brand, channel, etc., the vertical direction is expected to accelerate the development of midrange, high-end, mid-range and other incremental markets while strengthening its leading edge in high-end market share..

Profit forecasting and valuation

Keeping the profit forecast unchanged, the current stock price corresponds to 11/9 times P/E for 2024/25. Maintaining an outperforming industry rating, the target price was lowered by 35% to 56 yuan (the company transferred 10 shares to 5 shares, adjusted to 86.7 yuan after excluding the original target price of 130 yuan), corresponding to 15/13 times P/E in 2024/25, with 42% room for growth.

risks

Demand for terminals fell short of expectations; development of new products fell short of expectations.