Incident Overview

The company released its 2024 mid-year report: revenue for the first half of the year was 6.69 yuan, -5.68%; net profit to mother was 0.203 billion yuan, -9.10% YoY; net profit after deduction was 0.195 billion yuan, -10.74% YoY. The net cash flow from the company's operating activities was $0.162 billion, or -37.37% year-on-year, mainly due to an increase in cash from purchasing goods and receiving labor payments. Looking at a single quarter, 2024Q2 achieved revenue of 0.354 billion yuan, -6.60% year over year; realized net profit of 0.102 billion yuan, -17.16% year over year; net profit after deduction of 0.097 billion yuan, -19.98% year over year; Q2 profit side pressure was mainly affected by increased R&D expenses and exchange gains and losses.

Analytical judgment:

Independent brands and the domestic market have performed relatively well. We expect subsequent performance restoration. The company's performance declined in the first half of 2024, and there was no improvement in Q2. We expect it to be mainly affected by the pace of new product launch and production capacity construction in the short term. By sales model, OBM/ODM revenue in the first half of 2024 reached 0.433 billion yuan/0.19 billion yuan, +2.3%/-27.45%, and independent brands accounted for 69.5%; by region, domestic/foreign countries achieved 0.074 billion yuan/0.594 billion yuan respectively, +16.70%/-7.89% year over year, accounting for 88.9% of overseas markets.

Domestic and international performances are still at a high level, and events such as the France-Pakistan Olympics and the European Cup this year are expected to help boost enthusiasm. With experience in many influential large-scale projects at home and abroad (such as the 2008 Beijing Olympics, 2012 London Olympics, 2022 Qatar World Cup, etc.), Haoyang is highly recognized, and its brand Arden has leading competitiveness and recognition worldwide. Although Q2 short-term companies are still facing performance pressure, we expect subsequent performance to gradually pick up under high downstream demand and as the company's production capacity for new products climbs and considering the lower base in the second half of last year.

Profit side: Increased gross margin highlights competitiveness, maintaining high investment in R&D and maintaining a leading position in innovation in the industry. In terms of profitability, the company's gross margin increased 1.21pct to 51.85% year on year in the first half of 2024, of which Q2 gross margin increased 1.38 pct year on year, which is expected to increase the share of independent brand businesses that mainly benefit from high gross margins; in terms of expenses, the company's expense ratio for the first half of the year was 16.25%, +4.01pct year over year, mainly dragged down by declining revenue, relative cost rigidity, and continued increase in R&D investment; among them, the sales expense ratio was 8.33%, +0.97pct; the management expense ratio was 7.00%, +1.61 pct; the financial expense ratio was -4.31%, -0.37pct; the R&D cost rate increased 1.8 pct to 5.23% year over year, and R&D expenses remained high, and R&D efforts continued to increase to maintain the lead in product innovation. Affected by declining revenue and increased expenses, the company's 24H1 net interest rate fell 1.07pct to 30.59% year over year.

Investment advice

Since the company successfully acquired 100% of Arden's shares in France in 2017, it has formed its own two brands, “AYRTON (Arden)”, which mainly focuses on the high-end European and American markets, and “TERBLY (TERBLY)”, which mainly focuses on the high-end market in the Asia-Pacific region, and has become one of the high-quality stage lighting equipment manufacturers with overseas brands+domestic production capacity (OBM+ODM) in China. The company has benefited from the boom in the domestic and foreign downstream performing arts scene, and its performance has risen at an inflection point since 2021; moreover, in the medium to long term, the stage lighting equipment industry has consumption stability with the support of cultural consumption attributes, compounding that downstream customers are not price sensitive, and the equipment replacement cycle is short.

Despite short-term disturbances, we believe that the high-quality products created by the company with continuous investment in R&D and innovation are expected to stand out in the booming and stable downstream consumer market. The performance will continue to improve, and we are optimistic about the company's long-term development prospects. We adjusted our previous profit forecast and adjusted the company's 2024-2026 revenue from 1.652/2.07/2.561 billion yuan to 1.453/1.764/2.15 billion yuan respectively; EPS was adjusted from 5.71/7.11/8.72 yuan to 3.32/4.00/4.86 yuan, corresponding to the closing price of 37.87 yuan/share on August 20, 2024, PE was 11/9/8 times, respectively, maintaining the “buy” rating.

Risk warning

1) Risk of exchange rate fluctuations; 2) Risk of international trade friction; 3) Risk of production capacity expansion falling short of expectations; 4) Risk of downstream demand falling short of expectations