occurrences

Wuxi Zhenhua released its 2024 semi-annual report: 2024H1 revenue of 1.12 billion yuan, YoY +15.3%; net profit to mother 0.158 billion yuan, YoY +74.9%, after deducting non-net profit of 0.156 billion yuan, YoY +88.3%. Among them, 2024Q2's revenue was 0.63 billion yuan, YoY +14.9%; net profit to mother was 0.08 billion yuan, YoY +54.2%.

Key points of investment

The revenue scale of 2024H1 has been steadily expanding, and the management structure has been significantly optimized

The company's 2024H1 revenue scale has steadily expanded. The company's 2024H1 overall revenue was 1.12 billion yuan, YoY +15.3%; gross profit margin 24.5%, YoY+1.1pct; period expense ratio 8.6%, YOY-0.7pct, sales/management/finance/R&D expense ratio 0.2%/4.4%/1.1%/2.9%. 2024Q2 revenue 0.63 billion yuan, YoY +14.9%, gross profit margin 23.7%; net profit to mother 0.08 billion yuan, YoY +54.2%. The company's revenue from the stamping parts business, selective precision electroplating processing business, and mold business all rose sharply. As gross margin also increased significantly at the same time, net profit for the current period (before and after deductions) rose sharply compared to the same period last year.

The company's management structure has been significantly optimized, and management expenses have continued to decline. The company's 2024Q2 sales/management/finance/R&D expense rates were 0.1%/4.1%/1.0%/2.9%, YoY +0.04/-1.49/+0.11/+0.06pct, respectively, and QoQ was -0.02/-0.57/-0.08/-0.12pct, respectively. The significant reduction in the management expense ratio means that the company's comprehensive information management transformation has achieved remarkable results.

When the new energy transformation is underway, make every effort to benefit the market in the second half of the year

The company's new energy transformation continues to advance. Since 2017, the company has actively optimized its customer structure and transitioned to new energy sources. The share of new energy models in the total price of the company's newly bid parts has increased year by year. Currently, the company's main customers are well-known domestic automakers such as SAIC Volkswagen, SAIC-GM, and SAIC Passenger Vehicle, and has established stable cooperative relationships with many NEV manufacturers such as Tesla, Ideal Auto, and Xiaomi, to achieve a two-way grasp in the field of traditional energy and NEV parts.

Sales of Xiaomi and Ideal Auto continued to grow, helping the company's performance grow. Xiaomi delivered 0.027 million vehicles in the second quarter and is sprinting towards the full year 2024 sales target of 0.12 million vehicles. Ideal Auto 2024H1 achieved sales of 0.189 million units, YoY +35.8%; achieved sales of 0.051 million units in July, YoY +49.4%. The stable partnership between the company and the two automakers is expected to continue to help the company's performance grow in the future.

The automobile market entered a peak season in the second half of the year, and both favorable policy products promoted growth. In the first half of the year, automobile production and sales reached 13.891 million units and 14.4047 million units, respectively, up 4.9% and 6.1% year-on-year, respectively. Among them, production and sales of new energy vehicles reached 4929 million units and 4.944 million units, respectively, up 30.1% and 32% year-on-year, respectively, and reached 35.2% of the market share. The second half of the year is the peak season for automobile sales. Looking ahead to the automobile market in the second half of the year, favorable policies such as trade-in and new energy vehicles going to the countryside will continue to be implemented. The intensive launch of new products by enterprises will jointly drive both production and sales growth in the passenger car market, and the performance is expected to be high.

Selective precision plating connects with Bosch, and a new business engine is emerging

The company's 2024H1 selective precision plating business continues to grow at a high rate. The company's H1 selective precision electroplating segment achieved revenue of 89.132 million yuan, YoY +116.3%, and gross profit margin of 81.8% in 2024. The sector is expected to become the company's new growth engine.

The company leads the world in selective precision electroplating level, connecting with international leader Bosch. The company's wholly-owned subsidiary, Wuxi Kaixiang, is currently the only qualified domestic supplier for United Electronics in the field of precision chrome plating processes, and is also one of the important supply bases for Bosch in Germany's global production capacity.

Profit forecasting

The company's revenue for 2024-2026 is estimated to be 2.86/3.53/4.33 billion yuan, EPS is 1.4/1.7/2.1, respectively, and the current stock price is 10.8/8.8/7.2 times PE, respectively, maintaining a “buy” investment rating.

Risk warning

Risk of fluctuations in upstream prices of raw materials; geopolitical risk; company profits falling short of expectations; automobile production and sales falling short of expectations.