Incident: The company released its 2024 mid-year report. In 2014, H1 achieved operating income of 2.961 billion yuan, a year-on-year increase of 46.84%; realized net profit to mother of 0.233 billion yuan, an increase of 8.46% over the previous year.
Comment:
24Q2's revenue increased year over month, but gross margin fell short of expectations: in Q2 '24, the company achieved revenue of 1.598 billion yuan, +43.42% year over month; realized net profit to mother of 0.111 billion yuan, -12.22% year over year, -9.81% month on month; gross margin was 19.58%, down 2.81 pct year on year. The increase in revenue reflects a recovery in consumer electronics orders and an increase in the company's market share. The decline in gross margin was mainly due to fierce market competition leading to price cuts for some product lines, and the share of the charger and adapter business further expanded (from 73.94% to 79.08% in the same period in '23). The gross margin of this business is generally low.
Global smartphone demand continues to pick up under the catalyst of AI phones, and the company has benefited deeply as a leading mobile phone charger ODM manufacturer: According to IDC, since global mobile phone shipments fell to a rock bottom in Q4 in '22, they ushered in an inflection point after Q3 in '23. Global smartphone shipments increased 8.5%, 7.8%, and 6.5% year-on-year respectively in Q4, Q24, and Q2. AI phones will become another major growth engine after 5G high-speed mobile communication networks and foldable smartphones. It is expected that AI phones will become another major growth engine after 5G high-speed mobile communication networks and foldable smartphones in 2024. Shipments will account for 19% of the total market. Mobile phone devices are added through local AI, which increases the CPU's computational capacity and thus increases power consumption. Currently, there are more and more mobile phones with a battery capacity of more than 5,000 or 6000 mAh. Too large capacity causes traditional slow charging to bring a bad user experience, so mobile phone manufacturers are speeding up the deployment of fast charging products. Currently, many 1,000 yuan models are equipped with products with high charging power of around 100W. In the future, AI phones in the global mobile phone market will drive the fast charging trend. We believe that the company will benefit deeply as a leading ODM manufacturer of mobile phone chargers.
Based on consumer electronics, we will continue to expand into energy products in other fields, giving full play to the company's intelligent manufacturing advantages:
The company's energy efficiency application products already cover the fields of consumer electronics, new energy vehicles, and photovoltaic/energy storage. Based on power electronics technology, these products are composed of components of the same type, including case structures, PCBs, power semiconductor devices, magnetic components, and resistor capacitors, etc., and can achieve supply collaboration in various business sectors through unified group procurement. Thanks to the implementation of the company's major customers and standard product strategies, the reuse ratio of components and modules has increased, further forming the advantage of mass procurement.
Profit forecast, valuation and rating: Considering the company's performance in the first half of the year and the development of the NEV business fell short of expectations, we lowered the company's net profit to mother for 24/25 to 0.549 billion (-31%, same adjustment) /0.714 billion (-26%) yuan, and the net profit forecast for the additional 26 years was 0.862 billion yuan. The PE corresponding to the current market value is 13X, 10X, and 8X, respectively. Considering the current low valuation and the rapid development trend of fast charging under the wave of AI phones, the “buy” rating is maintained.
Risk warning: Increased market competition, risk of exchange rate fluctuations, and consumer electronics recovery falling short of expectations.