Incident: The company released its 2024 interim report. Revenue for the first half of 2024 was 0.67 billion yuan, down 5.7% year on year; net profit to mother was 0.2 billion yuan, down 9.1% year on year, mainly due to the high base in 2023 and the pace of new product launch affected by capacity restrictions. Revenue for the second quarter was 0.35 billion yuan, down 6.7% year on year and up 12.2% month on month; net profit to mother was 0.1 billion yuan, down 17.2% year on year and up 1.8% month on month. The year-on-year decline in profit in the second quarter was mainly due to increased R&D expenditure and reduced exchange earnings.

The share of OBM products increased, and profit margins remained high. The company's comprehensive gross profit margin for the first half of 2024 was 51.9%, up 1.2 percentage points year on year, mainly due to an increase in the share of independent brands; in the first half of the year, the company's OBM business revenue was 0.43 billion yuan, up 2.3% year on year, accounting for 65% (63% for the full year of 2023). The company's net interest rate in the first half of 2024 was 30.6%, down 1.1 percentage points from the previous year, due to increased R&D expenses and reduced exchange earnings. With the gradual release of the company's production capacity under construction, the sales share of laser light source products is expected to continue to increase, which will drive the company's overall profit margin up.

Focus on product competitiveness, and R&D investment continues to grow. The company's expense ratio for the first half of 2024 was 16.3%, up 4.0 percentage points year on year, with sales/management/R&D/finance expense ratios +1.0/+1.6/+1.8/-0.4 percentage points year on year, respectively; the company's expense ratio for the second quarter was 17.2%, up 7.9 percentage points year on year. Among them, the sales/management/R&D/finance expense ratio was +0.4/+2.3/+2.0/+3.2 percentage points year on year, respectively. The company focuses on product competitiveness, continues to increase investment in R&D, and the R&D cost rate reached a record high; the increase in sales and management expenses was due to an increase in related personnel and increased promotion of new products in the first half of the year.

The promotion of new products is going well, and performance is expected to improve after production capacity is released. The stage lighting industry is undergoing a stage of transformation from LED light sources to laser light sources. 2024 is the first year of laser lights. The current penetration rate is low, and there is huge room for future development. The company is in a leading position in the field of laser light sources. Arden brand laser lamp products passed FDA registration at the end of 23, and ODM products are also being registered at an accelerated pace. Currently, laser light source products have been sold at home and abroad. As the penetration rate of laser light sources continues to increase in the future, the company will continue to increase R&D investment to launch new products. After the production capacity of the Enping base is fully released in the second half of the year and the Panyu headquarters is put into use in '25, the company's production capacity bottleneck will be broken, and the volume of new products is expected to drive the company's performance to continue to grow.

Profit forecasting and investment advice. The company's net profit from 2024-2026 is estimated to be 0.42, 0.53, and 0.62 billion yuan, respectively, and the corresponding EPS is 3.34, 4.16, and 4.90 yuan, respectively. Corresponding to the current share price PE is 11, 9, and 8 times, respectively. The compound net profit growth rate for the next three years will be 19.2%. The company was given a target PE of 15 times in 2024, with a target price of 50.1 yuan. The first coverage was given, and a “buy” rating was given.

Risk warning: Global demand improves or falls short of expectations, capacity utilization increases or falls short of expectations, and the risk of global trade friction intensifies.