The company released the 24H1 interim report, achieving operating income of 11.47 billion yuan, a year-on-year increase of 24.5%, and achieved net profit of 1.88 billion yuan, an increase of 29% over the previous year. Among them, 24Q2 operating income and net profit to mother increased 20.8% and 11.9%, respectively.

By product, revenue growth of 24H1 sports casual shoes, outdoor boots, sports sandals/slippers and others was 24%, 27%, and 31%, respectively. By region, 24H1 revenue growth in the US, Europe, and others was 30.8%, -9.5%, and 25.3%, respectively.

The capacity utilization rate is high, and both volume and price have increased year over year. 24H1's capacity utilization rate was 97.3%, compared to 86% in the same period last year, a significant increase over the previous year, mainly due to the company's order recovery and continued progress in new customer cooperation. 24H1's sales volume was 0.108 billion pairs, up 18.7% year on year, and ASP increased 4.9% year on year to 106.2 yuan.

Gross margin increased markedly year over year, and profitability increased steadily. 1) Gross profit margin: 24H1 gross margin increased by 3.6 pct to 28.2% year on year. On the one hand, due to the increase in the company's capacity utilization rate, the depreciation of the Vietnamese dong also contributed to a certain extent. 2) Expense ratio: The 24H1 sales, management, and R&D cost rates were flat year-on-year, 2.1 pct and -0.3 pct, respectively. Among them, the sharp increase in the management cost ratio was mainly due to an increase in the company's calculated remuneration performance. 3) The 24h1 effective tax rate increased by 3.3 pct to 23.2% year over year. We estimate that this is due to the increase in income tax expenses accrued by the Hong Kong subsidiary increasing dividends to the parent company. 4) The 24H1 net profit margin increased by 0.6pct to 16.4% year-on-year.

We are actively expanding production capacity, and we can expect room for future growth. 24H1, the company's two new factories in Vietnam (a finished shoe factory and a shoe material factory, respectively) and a new finished shoe factory in Indonesia have begun operation. Looking ahead to 2024H2, the company will continue to build new factories in Indonesia and expand or build new plants in Vietnam. We expect the company's production capacity to continue to expand after 2025 to cope with the strong order boom in the medium term. On the other hand, the company's close cooperation with old customers has further increased, and the progress of cooperation with new customers continues to accelerate. We believe that the company has now entered the stage of expanding and speeding up production capacity, and it is expected that future operations will continue to grow rapidly.

According to the semi-annual report, we adjusted the profit forecast. The company's earnings per share for 2024-2026 are 3.33, 3.86, and 4.4 yuan (originally 3.18, 3.68, and 4.21 yuan), respectively. Referring to comparable companies, a PE valuation of 24 times 2024 is given, corresponding to a target price of 79.92 yuan, maintaining a “buy” rating.

Risk warning: exchange rate fluctuations, repeated epidemics, trade risks, rising labor costs, rising raw material prices