The company achieved a year-on-year increase of 15.74% of total operating income of 5.494 billion yuan in the first half of 2024: net profit to mother of 0.454 billion yuan, a year-on-year decrease of 64.16%: net profit without deduction of 0.4 billion yuan, a year-on-year decrease of 66.95%. The basic EPS was 0.241 yuan/share, a year-on-year decrease of 63.54%; the weighted average ROE was 3.97%, a year-on-year decrease of 6.91 pcts.

Lanke Lithium dragged down its performance, and the overseas pottery business bucked the trend and expanded. The company achieved revenue/net profit of 5.494 billion yuan/0.454 billion yuan respectively, with a year-on-year ratio of +15.74%/-64.16%, respectively: if the net profit from Lanke Lithium is excluded, 24H1's net profit to mother should have been 0.316 billion yuan, or -23.61% over the same period last year. In a single quarter, 24Q2 revenue was 2.932 billion yuan, +29.99% year over year: net profit to mother was 0.143 billion yuan, -83.48% year over year. The company's net profit declined sharply. Wang Yao stemmed from a year-on-year decline in Lanke Lithium's performance of more than 80%. By business, 24H1 revenue from overseas building materials/lithium battery materials for building materials machinery was 2.705 billion yuan/1.984 billion/ 0.3 billion yuan, respectively, +28.97%/+4.02%/-26.63%, respectively. The overseas building materials business maintained steady growth, and the building materials machinery business bucked the trend. By region, 24H1 domestic/foreign revenue was 2.053 billion yuan/3.437 billion yuan, respectively, +13.55%/+17.09% compared with the same period Overseas business accounts for 62.55% of revenue.

24H1 gross margin and net margin both declined, and cash flow improved dramatically. 2024H1, the company's gross sales margin was 25.63%:

Year-on-year decrease of 6.13 pcts: net sales margin was 10.09%, down 25.81 pcts year on year. Looking at 24Q2 alone, gross sales margin fell to 24.57%, down 6.68 pcts year on year, down 2.28 pcts month on month; net sales margin fell to 5.00%, down 45.77 pcts year on year, down 10.92 pcts month on month. By product, the gross margin of the 24H1 building materials machinery/overseas building materials/lithium battery materials business was 24.94%/30.95% 0.45%, respectively, compared to -2.54pct/-12.68pct/-3.27pct. Among them, overseas building materials profits were mainly under pressure on ceramic tile sales prices due to short-term pressure on ceramic tile sales prices due to increased market competition and depreciation in some African markets, which led to a sharp increase in the company's current exchange losses (24H1 exchange loss of 63.2575 million yuan, or 0.114 billion yuan in the same period last year). The cost rate during the 24H1 period was +4.19pct to 18.80%. Among them, sales/management/development/finance expenses rates were -0.40pct/+0.47pct/+0.12pct/+4.00pct, respectively. The 328.84% year-on-year increase in financial expenses was mainly due to increased exchange losses and increased interest expenses. The company's net operating cash flow achieved 0.258 billion yuan in the first half of the year, compared to -48.015 million yuan in the same period last year, an increase of 636.83% over the previous year, mainly driven by the expansion of sales scale and increased export tax rebates.

Lanke Lithium: The increase in the price of lithium carbonate increased and fell, which significantly disrupted performance. 24H1 Lanke Lithium's lithium carbonate production/sales volume was 0.0189 million tons/0.0203 million tons, respectively, +34%/+35% year over year. Due to the decline in lithium carbonate prices, we estimate that 24H1's lithium carbonate ton sales price was -63% to 0.083 million yuan/ton, and net profit per ton was -88% to 1.56 million yuan per ton. In addition, 24H1 Lanke Lithium increased its operating costs by about 0.4 billion yuan due to tax rate adjustments and retroactive adjustments confirming the amount of water purchased in the previous period. As a result, 24H1 Lanke Lithium achieved net revenue and net profit of 1.685 billion yuan/0.317 billion yuan, respectively, -49%/-84% year-on-year, respectively, and the net income of Lanke PeixiankeDa Manufacturing was 0.138 billion yuan, a year-on-year decrease of 0.716 billion yuan. If the influence of Lanke Lithium is excluded, we estimate that the net interest rate for Ce Sending 24 is -2.97pct year-on-year to 5.76%.

Building materials machinery: Overseas orders for ceramic machinery are strong, and industrial chain integration accelerates global layout. The company transformed from a traditional supplier of building materials, machinery and equipment to a full-service provider, and achieved vertical expansion through a combination of “equipment+accessories, consumables+service”. At the same time, through the establishment of new or mergers and acquisitions subsidiaries, the company entered a business leading market for lithium battery materials, aluminum extruders, overseas building materials, lithium battery materials and equipment: 24H1 subsidiary Henglitai's aluminum profile extruder orders totaled more than 100 million yuan, and achieved an increase in overseas orders. It also achieved the growth of overseas orders for automobile OEMs, the first domestic automobile door sill frame and other small parts equipment project 2024H1 Ceramic machinery business accounts for over 60% of orders: in Southeast Asia Orders from the Middle East, Europe and South Asia are growing strongly.

Overseas building materials: double expansion of categories & markets, with a significant impact on short-term exchange gains and losses. The company responds to the country's “Belt and Road” initiative, seizes the development opportunities of industrialization and urbanization in Africa, and vigorously develops the architectural ceramics business. 2024H1, the company's construction ceramics production is about 0.084 billion square meters, an increase of about 20% over the previous year, and is exported to Uganda, Rwanda, Malawi in East Africa, and Togo, Benin, Burkina Faso, Côte d'Ivoire and other countries in West Africa. In addition, the company gradually entered new categories of sanitary ware such as sanitary ware and glass, and produced more than 1 million pieces. In 2023, the company cooperated with IFC again to obtain a 5-year loan, with outstanding financial cost advantages.

The global strategy has developed further and maintained a “highly recommended” investment rating. The company uses “globalization” as its strategic deployment in the three major industries of building materials machinery, overseas building materials, lithium battery materials and equipment. The pottery business covers a wide range of over 60 countries and regions: the building materials business plan forms extensive coverage of the building materials market in sub-Saharan Africa. The plan is to gradually replicate Africa's successful experience in developing countries, lithium battery materials and equipment businesses. The hydraulic pump business relies on domestic product application experience and cost advantages to gradually build overseas distribution and service networks to promote overseas localized sales and services: the smart energy business has been deployed to companies in Kenya, Tanzania and other places in Africa to explore overseas opportunities. Previously, overseas building materials achieved high growth and high profit: now has a high market share The building materials machinery business can still achieve momentum growth through overseas orders. On the one hand, it reflects the technical advantages and cost advantages of Chinese manufacturing, and on the other hand, it shows that there are still great opportunities to be found in overseas markets. Considering the declining gross margin of the company's overseas building materials and the increase in the costs of Lanke Lithium, we lowered our profit forecast. The company's 2024-2025 EPS is expected to be 0.67 yuan and 0.81 yuan respectively, and the corresponding PE is 10.0x and 8.3x, respectively, maintaining a “highly recommended” rating.

Risk warning: sharp rise in raw material costs, new business and new market expansion falling short of expectations, overseas political risk, sharp drop in lithium carbonate prices, exchange risk.