1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 1.427 billion yuan, -9.58% year on year; net profit to mother 0.164 billion yuan, or -35.24% year on year; deducted non-net profit of 0.155 billion yuan, or -36.20% year on year. Looking at a single quarter, 2Q24's revenue was 0.775 billion yuan, -17.21% YoY, +18.96% month-on-month; net profit to mother was 0.09 billion yuan, -29.31% YoY, +21.15%. The company's performance was in line with our expectations.

Development trends

Performance performance was disrupted by delayed demand recovery, which improved month-on-month in 2Q24. 1) 1H24's self-produced components sector/trade sector/new materials sector achieved revenue of 0.542 billion yuan/0.812 billion/ 0.064 billion yuan respectively, -17.36%/-3.40%/-12.1% year-on-year, mainly due to fluctuations in industry sentiment during the reporting period. The downstream demand recovery process was still slow, and the company adjusted some product prices to consolidate market share. 2) The number of the company's 1H24 orders is growing steadily, hedging industry adjustments by accurately targeting market trends and exploring downstream demand. 2Q24 The company's revenue/net profit QoQ was +18.96%/21.15%, which improved from month to month.

Gross margin fluctuates due to structural and price adjustments, and continuous research and development breaks through the core technology for the localization of raw materials. 1) The gross margin/net profit margin of the 1H24 company was -3.9pp/ -9.2ppt to 39.4%/16.1%, respectively. The gross margin fluctuated, mainly due to the company's price adjustments for some products and a decline in the share of high-margin self-produced businesses. 2) The 1H24 company's expense ratio increased 2.41 ppt to 18.99% year-on-year, mainly due to an increase in depreciation and amortization of the company's assets, which led to a 2.23ppt to 9.58% year-on-year increase. 3) During the reporting period, the company invested 50.979 million yuan in R&D expenses, accounting for 8.41% of the main business revenue of self-production. The company has jointly carried out core technical research with many domestic and foreign electrode paste and porcelain powder suppliers to provide technical support for the localization of raw materials for existing products.

Diverse layouts cultivate new impetus for growth, and ceramic materials open up new space. 1) The company actively injects new growth momentum through diversified layout. Torch Electronics, Tianji Technology, Fujian mm, etc. are deeply involved in the passive component sector. Xiamen Core Generation focuses on the research and development of semiconductor chips such as MOSFETs, IGBTs, analog ICs, and third-generation power devices. Revenue from 1H24 Fujian mm's own production increased 16% year on year, and Tianji Technology's thin film circuit revenue increased 11.33% year on year. 2) The subsidiary of Liya has mastered a series of proprietary technologies for the industrialization of “high-energy special ceramic materials”, and is one of the few domestic enterprises with large-scale production capacity for ceramic materials. Ceramic materials are widely used in aero engine hot end components and other fields. Currently, the company's product performance and production capacity have stable supply capacity, and we believe it is expected to open up new growth space for the company.

Profit forecasting and valuation

Considering the pace of downstream demand release, we lowered our 2024 profit forecast by 47.9% to 0.369 billion yuan, and introduced a net profit forecast of 0.45 billion yuan for 2025. The current stock price corresponds to 27.3/22.4 times the price-earnings ratio for 2024/2025. We have been optimistic about the company's diversified layout and new materials business development prospects for a long time, and maintained an industry rating; taking into account profit forecast adjustments, the target price was lowered by 37.5% to 27.30 yuan, corresponding to the 2024/2025 price-earnings ratio of 33.9/27.8 times, with a potential increase of 24%.

risks

1) Production capacity construction and commissioning progress fell short of expectations; 2) Product delivery fell short of expectations.