1H24 results are in line with our expectations
The company announced the interim report: 1H24 achieved revenue of 1.65 billion yuan, +5.3% year over year; net profit to mother was 90.524 million yuan, +11.3% year over year; net profit without return to mother was 88.42 million yuan, +15.2% year over year.
Corresponding to 2Q24, revenue was 0.87 billion yuan, +5.3% YoY, +12.1% month-on-month; net profit to mother was 46.362 million yuan, +3.3% YoY, +5% month-on-month; net profit without return to mother was 45.633 million yuan, -2.8% YoY and +6.6% month-on-month. The 1H24 results were in line with our expectations.
Development trends
2Q24 The company's revenue outperformed the industry, and operating cash flow continued to improve. Referring to the China Automobile Association, 2Q24 domestic passenger car wholesale sales volume was 6.15 million units, +1.4%/+8.9%, and the new energy penetration rate was +10.1pct to 44.2% year over year; 2Q24 company revenue was 0.87 billion yuan, +5.3%/+12.1% year over month, and revenue growth outperformed industry sales growth. By business, the company's 1H24 ordinary line revenue was +6.4% to 1.45 billion yuan, gross margin +1.7 pct to 13.0% year over year; new energy line revenue -3.4% to 0.14 billion yuan, gross margin -0.7 pct to 18.1% year over year; data line revenue was +85.2% to 5.282 million yuan, gross profit margin 8.6%. 2Q24's operating cash flow was 67.388 million yuan, +267.2%/+44.1% over the same period. The absolute value exceeded the net profit level for the same period, and the capex was 74.97 million yuan.
In the context of rising raw material costs, gross margin remained resilient enough, and interest expenses affected the increase in expenses during the period. Shanghai Metal Network showed that the average spot price of electrolytic copper (tax included) was 0.075 million/ton for 1H24, +10.1% year over year, and the average price for 2Q24 was 0.08 million yuan/ton, +17.8%/+14.6% year on month. The gross margin of the 1H24 company was 13.4%, +1.4pct year on year, 13.3% corresponding to 2Q24, and +0.9pct/-0.1pct compared to the same period last month, which is quite resilient. 1H24's sales/management/R&D/finance expense ratios were 0.5%/1.9%/2.7%/1.6%, respectively, with a cumulative year-on-year increase of 0.9 pct. Financial expenses were affected by the accrued interest on convertible bonds issued by the company about 10 million yuan.
Domestic and foreign production capacity is progressing steadily, and the establishment of the KABEYI Smart Link layout is forward-looking. The company has six major production bases in Ningbo/Ningbo/Liaoning, Chengdu/Shanghai/Huizhou, Guangdong/Macheng, Hubei. 1H24's Macheng production base has been completed and accepted and has begun trial production. 1H24 invested in the construction of a Mexican production base to expand the North American market and customers. As of the end of 1H24, the book balance of the project under construction at the Mexican plant was 21.31 million yuan. In August, the company announced the establishment of a wholly-owned subsidiary, Kabeyi Zhilian, which mainly develops, produces and sells high-frequency high-speed copper cable products, which can be used in fields such as data centers, cloud storage, and artificial intelligence servers. We believe it is expected to gradually improve the company's industrial layout and open up room for long-term growth.
Profit forecasting and valuation
The profit forecast for 2024/2025 remains unchanged. Maintain an outperforming industry rating. The current stock price corresponds to 22.0/18.1 times 2024/2025 P/E. Considering the company's leading domestic automobile cable production position, the target price was raised by 14.3% to 42.0 yuan (excluding the impact of the share capital conversion), corresponding 24.0/19.8 times the 2024/2025 P/E, with 9.4% upward space compared to the current one.
risks
There is a risk that copper prices will fluctuate, production capacity will fall short of expectations, and the increase in profitability will fall short of expectations.