Incident: The company released its 2024 semi-annual report, putting pressure on performance

The company released its 2024 semi-annual report. 2024H1 achieved operating income of 1.575 billion yuan, a year-on-year decrease of 14.56%; realized net profit due to mother 0.136 billion yuan, a year-on-year decrease of 33.25%; and realized net profit deducted from non-mother of 0.113 billion yuan, a year-on-year decrease of 33.89%. 2024Q2 achieved operating income of 0.811 billion yuan, a year-on-year decrease of 16.59%; realized net profit of 0.08 billion yuan, a year-on-year decrease of 34.96%; realized net profit without deduction of 0.069 billion yuan, a year-on-year decrease of 45.82%.

The automotive electronics business continues to grow under pressure from intelligent control components and innovative consumer electronics businesses

In terms of revenue, 2024H1 intelligent control components/innovative consumer electronics/automotive electronics/health environment products/technology research and development services/others achieved revenue of 5.86/4.76/2.67/0.073/0.073/0.11 billion yuan, respectively, of -6.52%/-7.56%/+21.86%/-75.86%/+8.40%/-29.08%, respectively. The company's products in the fields of electric bicycles, office and analog control have achieved good growth, but the revenue scale of household engraving machine series products and e-cigarette related products declined year-on-year due to factors such as market competition, switching between old and new projects, and delays in the production capacity release of major new projects, which dragged down overall performance. In terms of gross margin, the gross margins of 2024H1 intelligent control components/innovative consumer electronics/automotive electronics/health and environmental products were 27.07%/25.81%/29.80%/24.57%, respectively, +4.43/-8.04/+0.55/ -12.37 percentage points, respectively. Looking forward to the future, the company has successfully obtained key new project opportunities from major customers in the fields of e-cigarettes, household engraving machines, electric bicycles, office and analog control, and is actively deploying new products in the fields of intelligent medical care and sustainable development to prepare for the company's development next year.

Expenses declined due to cost reduction and efficiency, but the decline in revenue led to an increase in cost ratio

The 2024H1 sales/management/R&D/finance expenses ratio was 2.31%/7.31%/10.42%/-1.27%, respectively, +0.23/+0.31/+0.93/+0.56 percentage points year-on-year, respectively. The decline in the company's sales expenses was mainly due to a reduction in business hospitality expenses and store rental expenses; the reduction in management expenses was mainly due to a reduction in share payments and electricity costs; the reduction in R&D expenses was mainly due to lower salary of R&D personnel and lower trial production costs for raw materials and semi-finished products; and an increase in financial expenses, mainly due to the combined effects of a decrease in net income from exchange rate fluctuations and an increase in interest income. The net interest rate due to 2024H1 was 8.61%, down 2.41 percentage points from the previous year, mainly due to a decrease in gross margin and an increase in the expense ratio.

Investment advice

We are optimistic that the company will actively cooperate with major customers to develop large single products based on the UDM model. The e-cigarette business heating module and complete machine projects are expected to expand, the household engraving machine business is expected to improve, and it is expected to actively expand new product lines, and incubate new products. Based on the pressure on the company's 24H1 performance, we lowered our profit forecast. We expect the company's 2024-2026 revenue to be 3.687/4.596/5.427 billion yuan (previous value was 4.548/5.689/6.909 billion yuan), with year-on-year growth of -4.5%/24.6%/18.1%, respectively; net profit to mother was 0.398/0.532/0.668 billion yuan, respectively (previous value was 0.522/0.704/0.911 billion yuan) , year-on-year growth of -11.7%/33.6%/25.6%, respectively. As of August 22, 2024, the total share capital and EPS corresponding to the closing market value were 0.51/0.68/0.86 yuan, respectively, and the corresponding PE was 21.27/15.92/12.68 times, respectively. Maintain a “buy” rating.

Risk warning

Export product market and policy risks, risk of relative concentration of customers, risk of falling product gross margin, risk of fluctuations in raw material prices, risk of exchange rate fluctuations.