Matters:

On August 8, 2024, the company released its 2024 semi-annual report. During the reporting period, it achieved operating income of 2.103 billion yuan, +15.73% year over year; net profit to mother 0.248 billion yuan, +282.89% year over year; net profit excluding non-return to mother 0.158 billion yuan, +205.37% year over year. Among them, 2024Q2 achieved revenue of 1.04 billion yuan, +11.99%/-2.20%; net profit to mother of 0.17 billion yuan, +655.48%/+119.91% YoY; net profit excluding non-return to mother 0.086 billion yuan, +263.35%/+18.02% YoY.

Commentary:

The domestic new energy market is growing steadily, and the company's business in the automotive industry is gradually expanding. The company is deeply involved in the business of interior and exterior, mechanical and electrical components, wheel bearing parts, and new energy motors. 24H1 revenue was 1.21/0.602/0.227 billion yuan respectively, up 12.77%/7.34%/266.09% year-on-year, accounting for 57.56%/28.63%/10.81% of revenue respectively. Among them, the new energy motor business grew significantly.

Q2 Net profit to mother increased significantly, and equity incentives were actively implemented to reward employees in the first half of the year. From January to June 2024, the company achieved net profit of 0.248 billion yuan, an increase of 282.89% over the previous year. The company issued an equity incentive draft on June 15, 2024, granting 15.33 million shares, accounting for 3.8% of the total share capital, and a total of 171 incentive targets, accounting for 3.5% of the company's total 4,840 employees (as of December 31, 2023). The unlocking conditions are no less than 0.25/0.288/0.331 billion for 24 to 26 years.

Actively develop screw products and expand downstream business. 23M7 has set up a project for automotive ball screw bearing units. It has now completed sample manufacturing and is expected to achieve mass production in the first half of 2025. The humanoid robot roller screw has completed formal research and development. Currently, the progress of projects such as prototype production and equipment investment is progressing rapidly according to the plan.

The Thai factory was put into operation, and overseas expansion began. 24M5's Thai plant has begun small-batch production. Currently, it has 3 wheel bearing production lines to achieve localized production throughout the process. The company is speeding up the expansion of overseas markets, which is expected to improve performance resilience.

Investment advice: The company is deeply involved in the basic market business of automotive parts and wheel bearing manufacturing. The performance has improved markedly. In 2024, it will enter the screw industry and further expand the market. We forecast the company's revenue for 2024-2026 to be 4.608/5.354/6.187 billion yuan, respectively. Taking into account the company's 24H1 performance slightly exceeding expectations and performance compensation, we adjusted net profit to mother to be 0.405/0.391/0.471 billion yuan; (the value from 24 to 26 years ago was 0.37/0.372/0.408 billion yuan, respectively). Referring to comparable company valuations, after deducting 0.089 billion in performance compensation, we gave the company 20xPE in 2024, corresponding to a target price of 15.8 yuan, to maintain a “strong” rating.

Risk warning: The company's business line is expanding rapidly, and the fundamental business is affected; the competitive pattern in the new energy market is intensifying; the development/verification of new products falls short of expectations, and the development of the lead screw falls short of expectations; overseas expansion falls short of expectations; geopolitical risks.