1H24 results are in line with our expectations

The company announced the interim report: 1H24 achieved revenue of 11.6 billion yuan, +13.6% YoY; net profit to mother was 0.53 billion yuan, +3.9% YoY. Corresponding to 2Q24, revenue was 5.92 billion yuan, +6.1% year over month; net profit to mother was 0.31 billion yuan, -1.2% year over year, +38.4% month on month; net profit without return to mother was 0.28 billion yuan, -5.7% year on year, +44.1% month on month. The 1H24 results met our expectations.

Development trends

Regional performance was clearly divided, and losses in the North American business were drastically reduced. By region, the company's overseas business revenue growth rate and gross margin growth rate in the first half of the year were far ahead of the domestic market on a low basis. Currently, domestic and overseas business revenue accounts for 76.9% and 23.1% respectively, with year-on-year growth rates of 6.3% and 47.1% respectively. Profits in various sectors of the overseas business are clearly differentiated. Profitability in the Southeast Asia region remained at a high level after improvement; European business still dragged down profits, 1H24 losses improved month-on-month, and year-on-year losses increased, waiting for improvements brought about by customer business-side optimization in the second half of the year; the North American business 1H24 operating losses narrowed drastically, regardless of exchange factors, and losses were reduced by about 40 million yuan, making significant improvements.

The customer structure continues to be optimized, leading to high profit growth for some subsidiaries. Among the major participating holding companies, Inoue Huaxiang's revenue increased 17% year over year, and net profit fell 50% year on year. We expect major customer Toyota to fall short of expectations, but future NEV customer contributions are expected to increase; Schram's revenue is +7%, and net profit is +26%. We expect the domestic and Southeast Asian markets to achieve good growth; Shengweideh's revenue ratio +43% year over year, and net profit +33% year over year. We expect to mainly benefit from Cilis and other customers. We currently supply all Xiaomi SU7 and Xiaomi SU7 Rearview mirror products. Overall, the share of joint venture customers in the company's current customer structure has gradually declined. New energy customers, including T customers, Huawei, etc., as well as independent brands such as Chery and Geely, are growing rapidly, and we believe this is expected to lead to continuous optimization of the company structure.

Investment in plant construction turned into merger and acquisition expansion, waiting for mid-term revenue targets to be achieved. The company's current expansion strategy focuses on achieving growth breakthroughs through mergers and acquisitions. In May of this year, the company passed a bill to acquire 47.5% of Ningbo Silam's shares and shares related to overseas Shiram in cash. After the transaction is completed, the company expects to hold 95% of Ningbo Silam's shares. The target company's revenue for 2023 is 2.25 billion yuan, and the net profit is 0.3 billion yuan. In June, the company announced that Ningbo Huaxiang plans to acquire all of the shares sold by Ecchi China, a global leader in interior parts. The target company's revenue for 2023 was 2.53 billion yuan and net profit was 40.144 million yuan. We expect the completion of the above transaction to increase the company's profits and increase the company's market share.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged. The current stock price corresponds to 7.2/6.3 times 2024/2025 P/E multiples. Maintain outperforming industry ratings. Keep the target price of 15.80 yuan unchanged, corresponding to 9.6/8.4 times the 2024/2025 price-earnings ratio, and there is 34.4% upward room compared to the current stock price.

risks

Overseas business fell short of expectations, joint venture customer sales fell short of expectations, and profit margins fell short of expectations.