Incident: 2024H1 achieved operating income of 3.37 billion yuan, -5.01% year over year; net profit to mother 0.38 billion yuan, -3.04% year over year; net profit after deducting non-return to mother 0.32 billion yuan, -8.28% year over year. In 2024Q2, the company achieved operating income of 1.78 billion yuan, -12.64% year over year; net profit to mother 0.26 billion yuan, -11.72% year over year; net profit after deducting non-return to mother 0.22 billion yuan, -20.63% year over year.

Comment:

Short-term revenue is under pressure, consolidating channel competitive advantage. On the industry side, the overall economy of the lighting industry was stable in the first half of 2024, and the export scale remained at an all-time high. According to the China Photographic Association, China's lighting sales volume from January to June this year was about 300 billion yuan, which is basically the same as the previous year. Among them, China's total exports of lighting products reached 27.5 billion US dollars, +2% over the same period last year. On the company side, Op 24H1's main domestic/overseas business revenue was 2.98/0.33 billion yuan, respectively, and YOY was -4%/-15% respectively. Despite short-term revenue pressure in the first half of the year, the company actively exploited the growth and medium- to long-term competitiveness of various channels: targeting domestic and offline channels, H1 upgraded the store image and actively captured front-end market traffic. The retail channel focused on building core stores to enable subsequent development. The distribution channel H1 maintained a good trend and further expanded market coverage; the commercial license business promoted the implementation of smart street lighting solutions in the core market; The e-commerce business conforms to hot concepts such as a healthy light environment to drive product structure optimization and help the level of online gross margin rise steadily; overseas businesses actively participate in infrastructure construction in countries along the “Belt and Road” to expand the brand's overseas influence.

Practice internal skills and expand cost efficiency advantages. The company's 24Q2 gross profit margin was 40.0%, +0.8 pct. The company promoted lean, automation and digitalization in an orderly manner. While achieving cost reduction and efficiency, quality improvement, and capacity expansion, the overall supply chain operation system was optimized, driving the continuous implementation of gross margin improvements in recent years. On the cost side, the company actively invested in brand and channel construction. The 24Q2 sales/management/ R&D/finance expenses ratio was 18.8%/4.0%/4.3%/-2.3%, respectively, +1.7/+0.4/+0.3/+0.3 pct. In addition, the company's 24Q2 non-recurring profit and loss program increased by 21.5 million yuan year-on-year (mainly due to changes in fair value due to government subsidies and holding transactional financial assets and liabilities), which contributed to the current results. In the end, in 24Q2, the company achieved a net interest rate of 14.8%, +0.2pct year on year; net interest rate without return to mother was 12.2%, or 1.2pct year on year.

Investment advice: As a leading domestic home lighting company, OPP has long been deeply involved in the construction of diversified domestic channels, consolidated product competitiveness, and continued to lead the market in scale. The company seizes the opportunity of industry intelligence to quickly enter, upgrade products and solutions, optimize store image and experience, and cultivate channel efficiency and long-term development strength. At the same time, the company is actively expanding product application areas and sales markets, accumulating rich experience in industry lighting solutions and project services in the commercial licensing field, and focusing on key overseas markets for channel layout, which is expected to create multiple growth curves. The company's net profit for 24-26 is expected to be 0.88/0.99/1.13 billion yuan (previous value of 1.05/1.18/1.33 billion yuan, considering Q2 revenue pressure to lower the annual revenue forecast), corresponding to 12.0x/10.8x/9.4x, maintaining a “buy” rating.

Risk warning: the risk of rising raw material prices; the risk of fluctuations in the real estate market; the risk of increased market competition; the expansion of overseas brands and categories falling short of expectations.