Event Overview: The company publishes its 2024 semi-annual report. With 2024H1, the company achieved revenue of 0.708 billion yuan, up 23.1% year on year; net profit to mother was 0.094 billion yuan, up 16.4% year on year; net profit without return to mother was 0.091 billion yuan, up 24.8% year on year. With 2024Q2, the company achieved revenue of 0.357 billion yuan, a year-on-year increase of 13.1% and a month-on-month increase of 2%; net profit to mother of 0.043 billion yuan, an increase of 6% year-on-year and a decrease of 15% month-on-month; net profit of 0.043 billion yuan after deducting non-return to mother of 0.043 billion yuan, an increase of 10.3% year-on-year and a decrease of 11.3% month-on-month.

Comment: Gross margin remained stable, and expenses increased a lot during the period

① The gross margin remained stable. 2024H1, the company's gross margin was 25.13%, down 0.32 pct year on year. Among them, the gross margin of fine blanking materials for auto parts fell 0.64 pct year on year, and the gross margin of industrial fine blanking materials increased by 1.48 pct year on year; in Q2, the company's gross margin was 25.19%, down 0.17 pct year on year, up 0.13 pct year on month.

② Expenses increased a lot during the period. Sales expenses and administrative expenses increased by 34.53% and 21.57%, respectively, due mainly to the increase in current share payments confirmed by the implementation of the restricted stock incentive plan. R&D expenses increased by 40.52% year over year.

Future core focus: Grasp the technological frontiers of the market and actively expand production capacity ① Committed to the cutting edge of market technology. The company links upstream and downstream of the industrial chain, invests in the purchase of various advanced special production equipment and precision testing instruments, has self-developed special processes and technologies, and has its own patents.

The new precision stamping materials produced by the company can be used for one-time molding of various components, can significantly reduce production costs for downstream customers, have been recognized by many well-known domestic and foreign companies for their stable and reliable quality, and have achieved import substitution in the fields of automobile safety systems and automobile power system materials.

② Master high-quality customer resources and actively explore overseas markets. The company has established long-term stable cooperative relationships with Schaeffler, Mubel, Magna, Faurecia and many other well-known domestic and foreign auto parts suppliers. In emerging application fields, the company has now entered the core customer industry chain in the bearing field, and is also actively exploring emerging application fields such as core component materials, sensor materials, and hydrogen energy core equipment materials for humanoid robots. In terms of market development, while benefiting from the dividends of increased demand in the domestic market, the company is actively developing overseas markets, and has now achieved coverage of overseas production bases for many international customers.

③ Seize demand to release opportunities and actively expand production capacity. In 2023, the company's production capacity was 0.16 million tons, and the production capacity scale is in the first tier of the domestic industry. The new Anhui plant project is expected to be completed by the end of 2024 and officially put into operation in 2025. It is expected to release 0.04 million tons of production capacity that year. In the long run, the two plants in Anhui and Suzhou will be able to provide a total production capacity of 0.3 million tons.

Investment suggestions: The future production capacity of Xianglou New Materials will be further increased, the product structure will be optimized, and the operation is steady. We expect the company's net profit to be 2.09, 2.44, and 309 million yuan respectively in 2024-2026, corresponding to the current price. PE is 12/11/8 times, respectively, maintaining the “recommended” rating.

Risk warning: the risk of raw material price fluctuations, the risk of industry cycle fluctuations, and the risk of high supplier concentration.