Matters:

The company released its 2024 mid-year report:

1) Revenue: 3.18 billion yuan/YoY +18%, +7% month-on-month, 1H24 6.15 billion yuan/ +17%; 2) Gross profit margin: single quarter 20.9% /year-on-year flat, -0.7PP, 1H24 21.2% /+0.6PP; 3) Period expense ratio: single quarter 12.9% /YoY +0.6PP, month-on-month -0.3PP, 1H24 13.1% /+0.2PP; 4) Net profit: 0.21 billion yuan/YoY +33% +10% month-on-month, 1H24 0.4 billion yuan/ +41%; 5) Net interest rate to mother: 6.6% per quarter/ year-on-year +0.7PP, +0.2PP month-on-month, 1H24 6.5% /+1.1PP.

Commentary:

The Q2 performance was in the forecast range, and net profit after deduction of non-return to mother continued to grow. Earlier, the company announced the 2024 performance forecast. The net profit for 1H24 is estimated to be 0.4-0.42 billion yuan. The actual semi-annual results are within the forecast range. In the first half of the year, the parts industry faced problems such as rising raw material prices and rising shipping costs. The company hedged against related adverse factors through measures such as management reforms and improved internal assessment mechanisms. Q2 deducted 0.18 billion yuan/YoY +25%, month-on-month +3%, 1H24 deducted non-return 0.36 billion yuan/YoY +41%. The profitability of overseas operators improved markedly during the reporting period: 1) North America: revenue 0.71 billion yuan/ +51%, net profit 0.02 billion yuan/loss; 2) Europe: revenue 0.09 billion yuan/ +91%, net profit -0.01 billion yuan/significant loss reduction.

Accelerate the third curve business, and new orders continue to increase. The company achieved breakthroughs in the third curve digital and energy thermal management business. During the reporting period, it broke through 4 strategic customers and 2 major customers, and acquired new projects in the fields of energy storage heat management, low altitude, and data centers. Over 130 new projects were acquired during the period. According to customer needs and forecasts, the company will add about 4.14 billion yuan in annual sales after delivery. Structurally, the international/domestic ratio is about 46%/54%, and passenger/commercial vehicles and non-road/digital energy are about 63%/23%/14%.

Revolutionize the organizational structure, lay out the fourth curve, and welcome globalization. The company changed the original organizational structure with 33322 as the core to a new organizational structure with 44332 as the core. The adjustments include the establishment of a new joint meeting and joint management decision-making mechanism, the addition of an AI digital intelligence product department (fourth curve), independent procurement and human resources departments, and the establishment of a new trading company. The company officially laid out the fourth curve to focus on and accelerate artificial intelligence-related businesses such as chip heat transfer, humanoid robots, and core components. Innovate the organizational structure to implement the outline of the five-year overseas development plan to meet global opportunities and challenges.

The market may be concerned about overseas policy risks, but the company's strategic focus has not moved. The rise of China's own/new energy brands has driven the rapid growth of domestic parts companies. The share of excellent companies has surpassed that of overseas brands, and the domestic automobile industry has become the only way for the next stage of development. In the short term, the market is more concerned about the risks of overseas policies such as tariffs, but risks and opportunities often coexist. The company's strategic focus has not moved, and it continues to advance in terms of overseas expansion and diversified business layout.

Investment advice: A journey of a thousand miles begins with one step. I am optimistic about the diversified development of the company's thermal management business. We maintain our 24-26 net profit forecast of 0.85/1.1/1.3 billion yuan, +38%/+30%/+18% year-on-year. Considering the company's past PE center and the growth of each business over 24-26 years, a segmented valuation and summary were carried out to maintain a target market value of 18 billion yuan, which is about 21 times PE in 2024. The target price was adjusted to 21.71 yuan to maintain the “Strong Push” rating.

Risk warning: Profit margins fall short of expectations, new projects fall short of expectations, digital and energy businesses fall short of expectations.