Incident: The company released its 2024 mid-year report. 2024H1 achieved total operating income of 5.694 billion yuan, -7.1% year over year; realized net profit of 0.954 billion yuan, +0.6% year over year; net profit after deducting non-return to mother of 0.975 billion yuan, +17.35% year over year.

Affected by the commercial vehicle industry, the company's Q2 results were under pressure in the short term. In the second quarter, the company achieved operating income of 2.791 billion yuan, -6.51% YoY, -3.88%; net profit to mother 0.405 billion yuan, -24.12% YoY, -26.21% month-on-month; net profit without return to mother 0.426 billion yuan, -10.32% YoY and -22.32% YoY. 2024H1's investment income was 0.77 billion yuan, down 5.1% year on year. Among them, Q2's return on investment in joint ventures was 0.35 billion yuan, down 7.9% month-on-month. The main reason was that RBCD was affected by commercial vehicle market demand and orders for diesel fuel injection system products declined.

Traditional businesses maintain market competitiveness, and the scale of revenue from new businesses continues to be released. Judging from the company's revenue structure in the first half of the year, automotive fuel injection systems/automotive aftertreatment systems/intake systems/other auto parts accounted for 42%/31%/9%/16% of total revenue, respectively. Among them, diesel fuel injection system revenue was 2.389 billion yuan, down 22.22% year on year, mainly due to adjustments in the commercial vehicle market structure. In particular, sales of heavy natural gas trucks squeezed market demand for some diesel vehicles; exhaust aftertreatment system revenue was 1.788 billion yuan, down 14.37% year on year, mainly due to falling prices of precious metals such as palladium and rhodium compared to the same period last year; intake system revenue increased sharply by 78.5% to 0.502 billion yuan year on year, mainly benefiting from supercharger product orders from core passenger car customers Growth; revenue from other auto parts was 0.923 billion yuan, an increase of 51.12%. This portion of revenue revolved around the company's new business layout in smart electricity and green hydrogen energy. Production capacity and customer orders for products such as motor shafts, heat management electronic pumps, mechanical vacuum pumps, car seats, and hydrogen fuel cell core components were gradually released, contributing to the company's overall performance.

2024H1's profit margin increased, and expenses were stable during the period. In 2024, H1's gross profit margin was 18.86%, +3.1 pct year on year, net profit margin 17.59%, +1.56 pct year on year; the cost ratio for the period was 13.25%, +0.32pct year on year. Among them, the financial expense ratio was 0.14%, -0.48pct; the management expense ratio was 5.81%, +0.93 percentage points year on year; the sales expense ratio was 1.99%, +0.31pct year on year; and the R&D expense ratio was 5.31%, -0.43pct year on year. The increase in the company's profit margin during the reporting period mainly benefited from the increase in gross margin of the fuel injection and post-processing business, which shows that the market competitiveness of the company's two traditional businesses continues to grow. Sales expenses increased to 0.113 billion, up from 0.103 billion in the previous period, and management expenses increased from 0.299 billion to 0.331 billion. The increase mainly includes wages and benefits, depreciation, and long-term asset amortization, reflecting the company's continued investment in improving operational efficiency and management standards.

Emphasis is placed on shareholder returns, and the mid-year dividend plan is active. The company announced the mid-term dividend plan for 2024, which is distributed on the basis of 0.972 billion shares, with a cash dividend of 2.20 yuan (tax included) for every 10 shares. The total amount of cash dividends reached 0.214 billion yuan, accounting for 22% of the net profit attributable to the mother for the period.

Increased shareholders' holdings are beneficial to the long-term development of the company. The company's largest controlling shareholder, Wuxi Industrial Development Group, and Bosch, a shareholder holding more than 5% of the shares, announced plans to increase the company's holdings within the next 6 months. Among them, the total amount of increase in the company's A/B shares is expected to be 6000 to 110 million yuan, and Bosch's total increase in the company's A/B shares is estimated to be 5,000 to 80 million yuan. The majority shareholders' proposal to increase their holdings fully reflects their recognition of the company's long-term investment value, which is conducive to the company's continued stable development in the future and boosts investor confidence.

Maintain an “Overweight” rating. We expect the company's net profit to be 2.02/2.23/2.46 billion yuan in 2024-2026, with a year-on-year growth rate of 10%/10.3%/10.2%, and the PE corresponding to the current stock price is 7.9/7.1/6.5x. If this interim dividend is added up, the company's cumulative dividend amount is expected to reach 1.186 billion yuan in 2024, and the current stock price corresponds to the company's dividend rate of 7.9%. We believe that the company still has undervalued and high dividend attributes, and maintains an “incremental” investment rating.

Risk warning: Downstream market demand falls short of expectations, new business development falls short of expectations, etc.