Event: The company publishes its 2024 mid-year report. The first half of 2024 achieved revenue of 1.427 billion yuan, a year-on-year increase of -9.58%, and realized net profit to mother of 0.164 billion yuan, an increase of -35.24% year-on-year.

Key points of investment

Industry fluctuations and downstream demand recovery is slow: the company achieved revenue of 1.427 billion yuan in the first half of 2024, an increase of -9.58% year on year, and achieved net profit of 0.164 billion yuan to mother, an increase of -35.24% year on year.

In the first half of 2024, under the influence of fluctuations in industry sentiment, demand recovery in the company's downstream market was still slow. In particular, sales revenue from the high-margin self-production business declined. As a result, net profit attributable to shareholders of listed companies, net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss, basic earnings per share, diluted earnings per share, and basic earnings per share after deducting non-recurring profit and loss declined.

Centralized auction repurchase, or as a positive sign: the company held the 10th meeting of the 6th board of directors on January 12, 2024 to review and pass the “Plan on the Repurchase of the Company's Shares” by full vote, agreeing to use its own funds to repurchase part of the company's shares. The total repurchase capital is not less than 15 million yuan, no more than 25 million yuan, and the repurchase price is no more than 35 yuan/share. On January 17, 2024, the company repurchased 255,578 shares of the company's shares for the first time through centralized bidding transactions, accounting for 0.06% of the company's total share capital, and the total amount of capital already paid was RMB 5,999,678.74 (excluding transaction fees).

The current repurchase of the company's shares indicates to some extent that it is in good financial condition and has sufficient cash flow and capital reserves. This indicates that the company may be able to expand operations, invest in R&D, or repay debts. In addition, buybacks can also reduce shareholders' equity and increase the company's leverage ratio, thereby increasing the return on shareholders' equity.

Electronic components have a stable position and are actively expanding into new markets: The company's profits mainly come from the components sector, which has a high threshold for entering the supporting market, and the competitive pattern is relatively stable. The company has been on the list of key enterprises in China's electronic components industry for 12 consecutive years, and has an advantageous position in terms of technology, products and customers. As downstream demand gradually recovers, it will have a positive impact on this sector's business. The supply chain management system in the trade sector is mature. It has established long-term and stable strategic partnerships with many well-known manufacturers at home and abroad, and relies on companies such as Hong Kong and Singapore to continue to introduce high-quality product lines to expand the Southeast Asian market and enhance market share and brand influence. The new materials business brings together cutting-edge material technology R&D and innovation. It has significant pioneering advantages and a complete industrial chain production capacity. Driven by policy and efficient collaboration in the downstream industry chain, it will drive the company's profitability to improve.

Profit forecast and investment rating: The company's performance is under pressure, but with the completion of the mid-term adjustment of the “14th Five-Year Plan” and compensatory development of the defense and military industry, it is expected that defense demand will release strong momentum, and downstream military orders will continue to increase, driving the company's component business revenue growth. At the same time, with the completion and expansion of domestic downstream application puzzles, the new materials sector will drive further growth in the company's performance. We basically maintain our previous forecast. We expect the company's net profit to be 0.453/0.625/0.762 billion yuan in 2024-2026, respectively, corresponding to PE 23/17/14 times, respectively, and maintain a “buy” rating.

Risk warning: 1) risk of changes in downstream market demand; 2) market competition risk; 3) management risk due to expansion of business scale.