1H24 performance is slightly lower than we expected

The company announced 1H24 results: revenue of 3.472 billion yuan, up 3.6% year on year, net profit of 0.24 billion yuan, corresponding profit per share of 0.93 yuan, up 8.2% year on year, net profit of 0.199 billion yuan year on year, up 4.1% year on year, slightly lower than our expectations. Looking at the single quarter, 2Q24 revenue was 1.721 billion yuan, up 3.6% year on year, and net profit to mother was 0.125 billion yuan, up 6.2% year on year after deducting non-return to mother Net profit was 0.109 billion yuan, down 10.2% year on year. Performance was slightly lower than our expectations, mainly due to SAVOYE France's loss of 34.149 million yuan in the first half of the year, a subsidiary of Smart Logistics, and a profit of 0.976 million yuan in the same period last year.

Gross profit margins declined due to French business. 1H24/2Q24's comprehensive gross margin fell 0.6/2.1ppt to 21.8%/21.9% year-on-year, mainly due to poor revenue performance in the first half of the year of SAVOYE, a subsidiary of Intelligent Logistics. In 2Q24, the company's sales, management and R&D expenses rates were +0.9/-0.7/-0.4ppt, respectively. The 2Q24 financial expense ratio declined by 1.4ppt to -1.5% year-on-year, mainly due to increased exchange earnings due to changes in the Russian ruble exchange rate. The company's net profit margin increased by 0.2ppt to 7.3% in 2Q24.

Ongoing orders declined, and operating cash flow outflows were net. By the end of the 1H24 period, the company's contract debt was 2.01 billion yuan, down 0.184 billion yuan from the beginning of the year. 1H24's net operating cash outflow was 0.121 billion yuan, compared with a net outflow of 0.125 billion yuan in the same period last year.

Development trends

In the medium to long term, we are optimistic that the domestic lithium battery industry chain will empower the company's large vehicle business. In 1H24, the company's warehousing and logistics vehicle business achieved revenue of 1.82 billion yuan, an increase of 5.6% over the previous year. According to data from the Construction Machinery Association, the cumulative sales volume of forklifts from January to June 2024 was 0.586 million units, an increase of 13.0% over the previous year. The company's forklifts started with small trucks, and the company's business has expanded to large trucks in recent years. Considering the obvious advantages of China's forklift lithium battery industry chain, we have also noticed that overseas companies are seeking OEM cooperation in the forklift business from Chinese companies. The company started as an OEM, so it is expected to benefit.

Zhongding's business has entered the delivery period, and revenue from the French business is weak due to the macroeconomic environment. In 1H24, the company's smart logistics system business achieved revenue of 1.65 billion yuan, an increase of 1.3% over the previous year. Wuxi Zhongding orders mainly come from the lithium battery industry. We expect the scale of orders from the lithium battery industry to decline, and we will continue to monitor the progress of Zhongding's orders expanding to other industries. The French business was affected by the European macro environment and revenue was weak.

Profit forecasting and valuation

Considering the weakness of the company's warehousing business in France, we reduced net profit to mother by 7.3% to 0.5 billion yuan in '24, and introduced net profit of 0.56 billion yuan for '25. The company's current stock price corresponds to 24/25 7.8x/7.0xp/e. Considering the reduction in profit and the downward shift in the valuation center, we lowered our target price by 22% to 19.6 yuan, corresponding to the 24/25 10.05x/8.99x P/E, with 29% room to rise, and maintain the outperforming industry rating.

risks

The penetration rate of electric forklifts fell short of expectations, demand for overseas forklifts declined, and exchange rates changed.