Key points of investment

Results continued to grow, and Q2 fell short of market expectations. The company's 24H1 revenue was 2.8 billion yuan, up 23%, net profit to mother of 0.22 billion yuan, 2% increase, gross profit margin of 20.6%, increase of 1.7 pct, net profit margin 7.8%, same decrease of 1.6 pct; of these, 24Q2 revenue was 1.4 billion yuan, +16%/+2.7% YoY, net profit to mother 0.1 billion yuan, gross profit margin 21.9%, +1.9/+2.6pct, net profit margin 7.2% , -3.0/-1.1pct YoY.

The share of power supplies continues to increase, and the electric drive business starts to expand. In '24, H1's vehicle power revenue was 2.3 billion yuan, up 89%, corresponding to shipments of about 1 million units. Third-party supply market share remained the first. Among them, Q2 shipped 0.5 million units, remained flat month-on-month. Affected by European tariffs in 24, SAIC exports were slightly affected, but customers such as Geely, Ideal, and Changan maintained high growth, and overseas customer Stellantis continued to release. We expect automotive power supplies to be shipped 2.5 million units throughout the year. , an increase of 25%. In addition, H1 electric drive revenue in '24 was 0.28 billion yuan, an increase of 300%. Benefiting from car companies' demand for cost reduction, all-in-one assembly products were rapidly released.

The product structure continues to be optimized to accelerate the overseas production capacity layout. The average price of H1's vehicle power supplies in '24 was 2,300 yuan/unit (excluding tax), with a gross margin of about 20%. Q2 has remained stable. We expect Q3 to have limited impact. With the optimization of the company's product structure, the share of 800V products and overseas 11kw products will increase, and the average price is expected to remain stable in the future; on the profit side, fourth-generation products have drastically reduced costs, and the price reduction of raw materials such as IGBT, combined with an increase in production capacity utilization. We expect the company's net interest rate to remain 8-9% in '24. In addition, the company is speeding up overseas expansion. Thailand plans to build a new factory, plan production capacity of 0.3 million units, and actively expand overseas customers. Overseas profit levels are better, and profitability is expected to increase further in the future.

Investment in R&D continued to increase, and operating cash flow declined. The company's expenses for the 24H1 period were 0.33 billion yuan, the same increase of 48%, the cost rate was 12.1%, and the same increase was 2.1 pct, of which the Q2 period cost was 0.18 billion yuan, +16% month-on-month, the cost ratio was 12.8%, and the month-on-month increase was +1.5pct, of which the Q2 R&D cost ratio was 6.9%, and the net operating cash flow for 24H1 was 0.01 billion yuan, or -96%, of which Q2 operating cash flow was 0.15 billion yuan, -211% month-on-month; 24H1 capital expenditure was 0.15 billion yuan, or -17%, of which Q2 capital expenditure was 0.04 billion yuan, -65% month-on-month; inventory at the end of 24Q2 was 1 billion yuan, compared to -5% at the end of Q1.

Profit forecast and investment rating: Considering weak sales demand in Europe, we lowered the company's net profit from 24-26 to 0.63/0.77/0.93 billion yuan (originally estimated 0.7/0.88/1.05 billion yuan), and increased 26%/22%/20% in 24-26, corresponding to 12/10/8 times PE, maintaining a “buy” rating.

Risk warning: technology iteration risk, market competition risk, raw material price fluctuation risk.