Incident: On August 26, 2024, the company released the 2024 semi-annual performance report. 24H1 achieved revenue of 6.15 billion yuan, a year-on-year increase of 16.9%; achieved net profit attributable to the parent company of 0.403 billion yuan, an increase of 41.13% year on year; realized net profit without deduction of 0.364 billion yuan, an increase of 40.78% year on year.

Driven by the three major sectors, profits achieved rapid growth. In Q2 '24, revenue was 3.182 billion yuan, up 17.55% year on year, up 7.17% month on month; net profit to mother was 0.211 billion yuan, up 33.34% year on year, up 10.37% month on month; after deducting non-net profit of 0.185 billion yuan, up 24.77% year on year, up 3.31% month on month. In terms of costs, in the second quarter of 2024, the company still achieved year-on-month growth in net profit due to adverse factors such as rising raw material costs and rising shipping costs. By sector, passenger car 24H1 achieved revenue of 3.182 billion yuan, an increase of 36.41% year on year; digital and energy business achieved revenue of 0.435 billion yuan, up 23.50% year on year; commercial vehicle and non-road revenue of 2.335 billion yuan, a decrease of 1.54% year on year. The company achieved revenue growth by focusing on the passenger car business and boosting the digital and energy business.

Gross margin continues to improve, cost control is steady, and profitability is further enhanced. 2024H1 gross margin was 21.23%, up 0.68pcts year on year; net margin was 7.21%, up 1.06 pcts year over year. The gross margin for Q2 in 2024 alone was 20.92%, up 0.01pcts year on year and 0.6 pcts month-on-month decrease. The slight decrease in gross margin was mainly due to factors such as rising raw materials and rising shipping costs. In terms of cost ratio, the cost rate during 2024Q2 was 12.93%, a decrease of 0.26pcts. Among them, sales/management/ R&D/finance expenses were 2.82%/5.25%/4.61%/0.26%, respectively, and +0.43/-0.05/-0.003/-0.64pcts, respectively. 24Q2 net margin was 7.32%, up 0.54 pcts year on year and 0.21 pcts month on month. The company's expense control is steady, and profitability is steadily improving.

Overseas profitability has improved, and the third curve has accelerated development, opening up space for medium- to long-term growth. There is still room for growth for passenger car and new energy vehicle companies in North America, and the third curve of the civil industry, and the company's performance is expected to rise to the next level.

The profitability of overseas operators has improved markedly, and the North American profit inflection point has reached: during the reporting period, North American operators achieved operating income of 0.706 billion yuan, an increase of 50.67% over the previous year; achieved net profit of 0.018 billion yuan, turning losses into profits over the previous year. European operators achieved operating income of 0.086 billion yuan, a year-on-year increase of 90.70%; realized net profit of 7.4117 million yuan, which reduced losses compared with the same period last year. The third growth curve for industrial and civil use has broken through a number of key customers and projects: during the reporting period, the company broke through 4 strategic customers and 2 major customers.

In the field of energy storage thermal management, it has obtained projects such as Ariston, BYD, CRRC, and Sunshine Power; in the low-altitude field, it has obtained a low-altitude aircraft thermal management project from a well-known customer; in the data center field, it has obtained orders from an internationally renowned mechanical equipment company for oversized cooling modules and data center overall solution service providers to provide customers with liquid cooling and cooling systems for BTB computing power centers.

Profit forecast: The company is expected to achieve operating income of 13.135, 15.898, 19.12 billion yuan in 2024-2026, up 19.22%, 21.03%, and 20.26% year-on-year. Net profit for 2024-2026 was 0.827, 1.131, and 1.36 billion yuan, respectively, and corresponding PE was 15, 11, and 9 times, respectively, giving it a “Highly Recommended” rating.

Risk warning: Risk of technology application falling short of expectations, increased risk of industry competition, and risk of rising raw material prices.