Key points of investment

Songlin Technology Releases 24H1 Results Announcement

24H1 achieved revenue of 1.448 billion yuan (+3.8% YoY), net profit of 0.221 billion yuan (YoY +83.7%), and 0.205 billion yuan after deduction (YoY +53.8%), of which 24Q2 achieved revenue of 0.766 billion yuan (YoY -3%), net profit to mother 0.11 billion yuan (+43.2% YoY), net profit after deducting 0.103 billion yuan (YoY +10.0%). Q2 Revenue pressure was mainly due to domestic sales disruptions due to multiple factors, and profit optimization was significantly due to the divestment of the Songlin family's business.

Export sales continue to grow rapidly, domestic sales are under pressure, and beauty and health are waiting to pick up. Look at the regions: export sales are growing rapidly, domestic sales are under pressure. 24H1's export revenue was 1.063 billion yuan (+15.5% YoY), accounting for 73.4% of revenue, mainly due to the end of sanitary ware exports and restoration of overseas demand, and domestic sales revenue of 0.385 billion yuan (-19% YoY), mainly due to domestic real estate pressure and policy fluctuations.

By category: Steady kitchen and bathroom, healthy adjustment. 1) Kitchen and health: 24H1 revenue of 1.27 billion yuan (+6% YoY), accounting for 87.8% of revenue. We expect international customers to be under pressure from domestic sales, which is greatly affected by pressure on the real estate environment and consumption downgrade; 2) Health and beauty: 24H1 revenue of 0.14 billion yuan (-0.4% YoY). We expect downstream customer sales to be greatly affected by new domestic regulations (from April 1, 2024, radiofrequency beauty devices will not be produced, imported or sold without obtaining a Class III medical registration certificate in accordance with the law), and international customers are also affected by international customers Orders have fluctuated due to the international situation, and we look forward to the launch of new customers in new categories in the future.

The divestment of the Song Lin family reduced losses, and profit optimization was obvious

The gross margin for 24Q2 was 35.2% (+0.24% YoY, -0.38%, basically stable), the period expense ratio was 18.7% (YoY +2.5%, +0.4% month-on-month), and the net interest rate to the mother was 14.34% (+4.63% YoY, -2.01% month-on-month). The large year-on-year increase in net interest to the mother was related to the divestment of the loss-making Song Lin family.

Profit forecasting and valuation

We are optimistic that the company will continue to increase its market share and expand new high-margin categories based on the IDM model in the medium to long term. Based on short-term domestic real estate pressure and beauty and health business adjustments, we adjusted our expectations. In 2024-2026, the company is expected to achieve operating income of 3.21/3.73/4.35 billion yuan, up 7.6%/16.3%/16.5% year on year, and achieve net profit of 0.449/0.544/0.628 billion yuan, up 27.3%/21.3%/15.4% year on year, corresponding to the current market value PE of 14.7/12.1/10.5, maintaining the “increase” rating.

Risk warning

Export demand fluctuates; the Federal Reserve's interest rate cuts fall short of expectations; changes in raw material costs and exchange rates; orders from major customers fluctuate; the release of new smart health products falls short of expectations, etc.