The performance was in line with expectations. The company's revenue for the first half of the year was 2.742 billion yuan, up 39.8% year on year; net profit to mother was 0.372 billion yuan, up 34.9% year on year; net profit after deducting non-return to mother was 0.343 billion yuan, up 32.1% year on year. Revenue for the second quarter was 1.325 billion yuan, up 26.4% year on year, down 6.5% month on month; net profit to mother was 0.153 billion yuan, up 6.1% year on year, down 30.4% month on month; net profit without return to mother was 0.143 billion yuan, up 4.8% year on year and down 28.4% month on month. The company's performance in the second quarter was under slight month-on-month pressure. It is expected to be mainly due to a combination of the month-on-month decline in sales volume for domestic customers such as Volkswagen, as well as the reduction in customer compensation income and government subsidies confirmed in the current period.

Gross margin came under pressure for a short time in the second quarter, and expense ratios improved in the first half of the year. The gross profit margin for the first half of the year was 29.1%, down 1.8 percentage points year on year; the gross profit margin for the second quarter was 26.1%, down 4.5 percentage points year on year, down 5.9 percentage points from month to month. The decline in gross margin is expected to be mainly affected by product and customer revenue restructuring; the cost ratio for the first half of the year was 15.4%, down 1.6 percentage points year on year, with the financial expenses ratio increasing 1.7 percentage points year on year, mainly due to increased exchange losses (exchange loss of 13.67 million yuan in the first half of the year, last year Exchange earnings for the same period were 15.51 million yuan). Net cash flow from operating activities in the first half of the year was 0.126 billion yuan, a year-on-year decrease of 60.0%, mainly due to increases in product procurement, labor costs and tax payments.

There are plenty of orders in hand, and the volume of domain control system products is being released at an accelerated pace. In the first half of the year, the company obtained 43 new designated projects. As of the end of June, 136 projects were under development, including 21 global platform projects including Volkswagen Group's next-generation LED headlight controller project. The company's lighting control business maintained steady development, achieving revenue of 1.378 billion yuan in the first half of the year, an increase of 36.0% over the previous year; domain control products continued to be released, with energy management system product revenue of 0.319 billion yuan in the first half of the year, up 103.8% year on year, accounting for the main business revenue ratio from 8.2% to 12.0%; the company has plenty of orders for chassis control products such as DCC, ASC, and chassis domain control. With the gradual mass production of supporting models, it is expected that various new products such as domain control products will help the company open up a new growth curve.

The development of new products and new customers is expected to open up new space. The company has accelerated the development of new products in the global market. Efuse, DCC, ASC, etc. have been designated by the public, eLSV has been designated on the BMW global platform, DC/DC has been designated for Porsche and Audi projects, and intelligent thermal management actuators have been designated for Audi and BMW global projects. The company actively promoted cooperation with new domestic and foreign car companies such as Ideal, NIO, Xiaopeng, and New North American Car Builders. In the first half of the year, New Force accounted for more than 15% of sales. Of these, Ideal's sales volume was about 0.3 billion yuan, an increase of 157.5% over the previous year, and the sales share rose from 6% to 11%, making it the company's fourth largest customer. It is expected that overseas markets and the influx of new customers will become an important driving force for the company's development.

The gross margin forecast was slightly adjusted, and the 2024-2026 EPS was 1.93, 2.52, and 3.13 yuan, respectively (originally 2.05, 2.68, and 3.39 yuan), which is 34 times the company's 24-year PE average valuation, and the target price is 65.62 yuan, maintaining the purchase rating.

Risk warning

The supporting volume of the lighting control business fell short of expectations, the motor control business fell short of expectations, the automotive electrical and electronics business fell short of expectations, and the sales volume of the passenger car industry fell short of expectations.