Key points of investment:
Dahua Co., Ltd. announced its 2024 semi-annual report. The first half of the year achieved operating income of 14.867 billion yuan, a year-on-year increase of 1.59%, net profit of 1.8 billion yuan, a year-on-year decrease of 8.42%, after deducting non-net profit of 1.762 billion yuan, an increase of 0.43% over the previous year. A cash dividend of 1.84 yuan is distributed to all shareholders for every 10 shares.
Revenue and deduction of non-profits are generally in line with expectations. Changes in fair value and exchange gains and losses affect net profit attributable to mother. 1) 2024H1 revenue increased 1.6% year on year. Previously, the market expected revenue to grow by a small single digit, with a 0.4% year-on-year increase after deducting non-net profit. Market expectations leveled off, and revenue profit was basically in line with expectations; 2) 24H1's exchange earnings were 53.12 million yuan, revenue for the same period of 23 years was 0.349 billion yuan, and revenue decreased by 0.296 billion yuan. At the same time, 24H1 lost 0.16 billion yuan due to changes in fair value, earned 0.135 billion yuan for the same period last year, and a change of 0.295 billion yuan. The above two changes had an impact on profit performance.
Overseas revenue accounted for more than 50% for the first time, and domestic 2G/channel sales were under pressure in the short term. 1) The share of 24H1's overseas business revenue reached 50.35%, surpassing domestic channel sales. The company promoted grid coverage and accelerated new business layout such as software; 2) the overall demand for domestic 2G business was released slowly, and revenue is expected to pick up after the release of demand such as emergency response and road cloud in the second half of the year; 3) The domestic 2B business showed resilience, and the company built a benchmark customer in education, energy, etc.; 4) Considering the overall rise and fall of the 2023 base, we think 24H2's domestic revenue growth is expected to accelerate.
The slight decline in gross margin is expected to be related to increased competition in the industry. The company's gross profit margin in the first half of the year was 41.27%, down 1.6 pct year on year. Among them, overseas business fell 1.03 pct year on year, domestic channel sales and others fell 4.54 pct year on year, and domestic channel sales and others fell 4.54 pct year on year, with many declines. The company dropped vertically in the first half of the year in the distribution sector and expanded special channels horizontally. However, due to increased competition in the domestic channel industry in the first half of the year, gross margin still declined in the short term.
Cash flow is basically in line with income, accounts receivable and inventory have expanded slightly, and the expense ratio is basically stable. 1) The company's 24Q1/Q2 cash inflow increased 5.1%/2.5% year on year, and Q1/2 revenue increased 2.75%/0.79% year on year, basically matching cash flow with revenue; 2) Accounts receivable at the end of the second quarter were 16.7 billion yuan, a slight increase from 15.4 billion yuan at the end of the first quarter, and inventory at the end of the second quarter was 5.7 billion yuan, a slight increase compared with 5.54 billion yuan at the end of the first quarter, and there was no significant change in the remaining assets and liabilities; 3) The company's sales/management/R&D expenses for the first half of the year were respectively 15.26%/3.44%/12.79%, year-on-year change +0.29/ -0.49/0.39pct.
Maintain an “Overweight” rating. Considering that the domestic 2G budget recovery is lower than our previous forecast, the 2024-2026 revenue forecast was slightly lowered to 34.582, 37.914, and 40.795 billion yuan, the original forecast was 34.972, 38.546, and 43.085 billion yuan. Corresponsively, the 2024-2026 profit forecast was slightly reduced to 3.758, 4.459, and 4.47 billion yuan. The original forecast was 4.068, 4.778, and 5.282 billion yuan. Considering the company's resilience in 2B and overseas markets, as well as its leading position in the Chinese visual market, it maintained an “gain” rating.
Risk: Can management continue to be optimized, and 2B businesses face complex situations when they continue to sink in fragmentation/2B business expansion.