Incident: Huayang Group disclosed the 2024H1 report, achieving revenue of 4.193 billion yuan, +46.23% year over year; net profit to mother of 0.287 billion yuan, +57.89% year over year; and achieved revenue of 2.2 billion yuan in Q2 2024, +42%/+11% year on month.

The two main businesses are growing rapidly, and products+customers are fully blossoming. The company focuses on its main business: automotive electronics and precision die casting. 24H1 automotive electronics revenue was 3.071 billion yuan, +65.41% year over year; precision die casting achieved revenue of 0.914 billion yuan, +23.55% year over year. (1) The automotive electronics business achieved high growth. New product lines such as cockpit domain control, precision motion mechanisms, and digital acoustics have successively entered the large-scale mass production stage, and sales revenue has increased dramatically; orders have increased dramatically, joint ventures and international car company customers have increased in targeted numbers, and the share of Chery, Quanjie, and Ideal has increased dramatically. (2) The precision die-casting business continues to grow. Sales revenue of components related to automotive intelligence (lidar, central control screens, domain control, HUD, etc.) and components related to optical communication modules increased sharply year-on-year; revenue from Bosch, UMC, Behrhela and other important customers increased dramatically.

The release of production capacity led to a month-on-month increase in gross profit in 24Q2, and cost-side control capabilities were good. The gross margin of 24Q2 was 21.94%, -0.2pct/+0.38pct compared to the same period last month. Mainly due to the gradual release of production capacity for new automotive electronics products, which strongly supported the Q2 gross margin level, the large-scale effect was initially evident. According to subsidiary companies, Huayang Multimedia 24H1 achieved net profit of 0.06 billion yuan, +687% year over year; net profit margin was 7.4%, +5.8pct year over year, mainly due to scale effects. Huayang GM's 24H1 net profit reached 0.091 billion yuan, +20% year over year; net profit margin was 3.9%, -0.9 pct year on year. Huayang Precision Machinery 24H1's net profit was 0.117 billion yuan, +20% year over year; net profit margin was 13%, -0.4 pct year on year. In terms of costs, the cost rate for the Q2 period was 13.9%, -0.9 pct/-0.3 pct compared to the same period, the sales cost rate/management cost rate/R&D cost rate/financial cost ratio was +0.5pct/-0.6pct/-1.4pct/+0.5pct, and the month-on-month ratio was +0.2pct/-0.4pct/+0.1pct/-0.2pct, respectively, and the control capacity was good.

R&D investment continues to grow, and iterative mass production of new products is being implemented at an accelerated pace. 24H1 continued to increase R&D investment. During the reporting period, R&D investment was 0.373 billion yuan, +25.57% year-on-year, accounting for 8.90% of revenue, or +0.06pct month-on-month. Automotive electronics products and technology are rapidly iterated, and innovative multi-functional products are launched. The company develops cabin driving integration and central computing unit products based on the Qualcomm 8775 chip, which is expected to be launched in the second half of this year. The company has now taken the lead in mass production of 5.1-inch TFT HUD; increased investment in OLED display technology research and production, and increased mass production projects. Self-developed vision simulation software has been put into use, and the first project has entered mass production. The precision die-casting business focuses on core technology areas and continuously enhances the development and manufacturing capabilities of key components and semi-assembly technology for new energy vehicles.

Investment advice: The company's clients' ownership+joint venture/foreign investment is fully blossoming, and it is expected that production capacity for new products will continue to rise in the second half of the year. We expect the company to achieve revenue of 9.107, 11.282, and 13.73 billion yuan in 2024-2026, +27.60%/+23.88%/+21.70%; net profit to mother of 0.643, 0.849, 1.041 billion yuan, +38.42%/+31.94%/+22.63% year-on-year, corresponding to the previous PE valuation of 20, 15, and 12 times, respectively, maintaining a “buy” rating.

Risk warning: The penetration rate of automotive intelligence falls short of expectations, fluctuations in raw material prices exceed expectations, chip shortages exceed expectations, new product development progress falls short of expectations, and overseas market expansion falls short of expectations.