The company released 24H1 results:

24H1 achieved revenue of 0.669 billion yuan, a year-on-year decline of 5.68%, realized net profit of 0.203 billion yuan, and realized net profit of 0.195 billion yuan or -10.7% year-on-year. Of these, Q2 achieved 0.354 billion yuan, -6.67% year-on-year, realized net profit attributable to mother 0.102 billion yuan, -17% year-on-year, and realized net profit without return to mother 0.097 billion yuan, -20% year over year.

Growth is under pressure from a high base, and regions and models are differentiated

Under a high base of 24H1 as a whole (23Q1/Q2 revenue +42.47%/11.65%, respectively), the company's growth is under pressure. Looking at the split:

1) By product, stage entertainment lighting is the company's core revenue source. 24H1 achieved revenue of 0.602 billion yuan, -9.85% year-on-year, gross profit margin of 52.79%, and +1.88pct year-on-year, along with the increase in the share of high-margin OBM business and the high-end ODM business, and improved profitability.

2) In the subregion, domestic 24H1 revenue was 0.074 billion yuan, +16.7%, gross profit margin of 36.3%, and -0.85%. The main customers of the company's domestic OBM products are TV stations, theaters, stadiums, various types of performing arts venues, travel and performing arts project operators, enterprises and institutions with internal stages, entertainment lighting equipment leasing companies, etc., and providers of comprehensive solutions for performing arts lighting equipment engineering. The company benefited from high demand in the 24H1 domestic performing arts scene; overseas 24H1 sold 0.594 billion yuan, -7.89% year-on-year, with a gross profit margin of 53.8%, and +1.83 pct year-on-year. Demand-side performance was under pressure. Among them, the OBM business was steady, and the pressure on the OEM business was obvious.

3) By model, the OBM business 24H1 revenue was 0.433 billion yuan, +2.3%, gross profit margin was 53.1%, year-on-year -0.27pct. The company's Arden brand developed steadily. Against the backdrop of poor demand-side performance, revenue remained resilient and profitability was stable; ODM business 24H1 revenue 0.19 billion yuan, -27.5% year on year, gross profit margin 51.4%, year-on-year +5.26pct. The company successfully launched next-generation laser light source products in 23 years and is still being promoted in the market for 24 years At this stage, the OEM business was under pressure for a short period of time, but the launch of a new generation of high-end products optimized the product structure, and gross margin was optimized.

Profitability remains stable, and increased stocking shows confidence

24H1's gross profit margin was 51.9%, +1.22pct year on year, and +4.01pct year on year, with a sales expense ratio of 8.33%, +0.97pct year on year, management and R&D expenses ratio 12.23%, and +3.41pct year on year. The company continued to increase investment in R&D, enhance product strength, financial expenses ratio -4.31%, -0.37pct, net profit margin to mother 30.4%, year-on-year -1.14pct, with an overall maintenance ratio. The company's current net operating cash flow was 0.162 billion yuan, -37% year over year. When split, 0.678 billion yuan of cash received from selling goods and providing labor services was steady year over year, but 0.333 billion yuan in cash from purchasing goods and receiving labor payments was +56% over the same period. The acceleration in raw material reserves showed confidence in the company's subsequent growth.

R&D capabilities continue to be deepened, and the 24H2 low base growth is expected to restore the company's continued investment in R&D. The company has many independent intellectual property rights at home and abroad in the fields of modeling, electronics, optics, heat, mechanical structure and control systems for its main products. As of December 31, 2023, the company and its subsidiaries have a total of 666 valid domestic patents, including 88 invention patents, 428 utility model patents, and 150 design patents; the company and its subsidiaries have a total of 130 overseas patents; and 398 software copyrights, which have continued to increase research and development to ensure the launch and promotion of laser products. Looking ahead to 24H2, as the base figure gradually decreases (23Q3-Q4 revenue -16%/+0%, respectively), the company's laser product promotion progresses in an orderly manner, and growth is expected to be repaired.

Profit Forecasts and Investment Ratings

We expect the company to achieve revenue of 1.45/1.74/2.08 billion yuan in 24-26, +11%/20%, respectively, and net profit to mother of 0.42/0.51/0.61 billion yuan, respectively, +14%/21%, corresponding to PE 11/9/8, maintaining a “buy” rating.

Risk warning

Raw material risk, exchange rate risk, competition exacerbate the risk.