1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 10.147 billion yuan, +20.71% YoY; net profit to mother 2.096 billion yuan, -4.97% YoY. Single 2Q24 results: revenue of 5.638 billion yuan, +17.29% year over year; net profit to mother of 1.027 billion yuan, -22.19% year over year. The results were in line with our expectations.

Development trends

The scale of revenue grew steadily, and the profitability of the materials business declined. By business, 1H24:1) Equipment and services: revenue 7.368 billion yuan, +20.64ppt; gross profit margin 37.43%, -2.70ppt year over year. 2) Materials: Revenue of 2.367 billion yuan, +25.74% year over year; gross profit margin of 40.15%, year-on-year -14.51ppt. We judge that it is mainly due to pressure on the operation of the main downstream industry chain, and the reduction in the gap between supply and demand for consumables such as crucibles, leading to a decline in profitability. 1H24's overall gross margin was 37.0%, year-on-year -5.66ppt, 2Q24 gross margin was 31.8%, year-on-year -12.41ppt.

Fee control was better, and impairment losses on accrued assets increased in the second quarter. 1H24's sales/management/R&D/finance expenses rates were 0.5%/2.4%/6.0%/0.0%, respectively, compared with +0.1/+0.33/ -1.11/+0.08ppt, respectively. The overall cost rate decreased slightly, showing that the company's cost control was better. In the second quarter, the company calculated asset impairment losses of 96.25 million yuan, +157.1% over the same period, mainly due to inventory price decline losses. We determine that the company adopted a more prudent financial treatment approach when facing certain downstream operating risks.

1H24's net profit margin was 20.7%, year-on-year -5.58ppt, 2Q24 net profit margin was 18.2%, year-on-year -9.24ppt.

Inventories and contract liabilities are still sufficient, and operating cash flow has declined. As of the end of 1H24, the company's inventory was 13.761 billion yuan, or 1.25 billion yuan year on year, mainly due to a decrease in products issued; contract liabilities were 8.367 billion yuan and -2.02 billion yuan year over year, mainly due to a decrease in advance payment, but the amount of inventory and contract liabilities was still high, and we think it is expected to support subsequent performance growth. The cash flow from 1H24 operating activities was 0.287 billion yuan, -0.731 billion yuan year over year, mainly due to a decrease in sales receipts and tax rebates received.

Focus on the company's expansion into new fields and technological progress. The company continues to be deeply involved in the field of photovoltaics, expanding from silicon wafers to battery-side equipment, and carrying out differentiated design and process innovation. At the same time, in the field of pan-semiconductors, the company continues to develop 12-inch large silicon wafer dry-in-drying and double-sided thinning machines, which have been tested by clients one after another; developed an 8-inch single/double-chip silicon carbide epitaxial furnace, and rapidly climbed the production capacity of 8-inch silicon carbide substrates.

Profit forecasting and valuation

Due to fluctuations in demand in the main downstream industry chain or pressure on the company's subsequent repayment and contract signing, we lowered 2024/2025 net profit by 11.9%/20.2% to 4.887 billion yuan/5.357 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 6.9x/6.3x. Maintaining an outperforming industry rating, the target price was lowered by 18.6% to 35.00 yuan at the same time, corresponding to 9.4 times the 2024 price-earnings ratio and 8.6 times the 2025 price-earnings ratio. There is 36.1% upside compared to the current stock price.

risks

There is a risk of technology iteration, and the downstream production expansion progress is lower than expected.