2Q24 revenue was in line with our expectations, and performance was slightly lower than our expectations

The company announced 1H24 results: 1H24 revenue of 1.862 billion yuan, +38.77% YoY; net profit to mother 0.207 billion yuan, +20.78% YoY. Corresponding 2Q24 revenue was 1.038 billion yuan, +33.42% YoY; net profit to mother was 0.122 billion yuan, -5.80% YoY. The company's 2Q24 revenue was in line with our expectations, but due to exchange rate fluctuations, the company's 2Q24 performance was slightly lower than our expectations.

Major customers cooperate steadily, and the gradual mass production of new projects drives revenue growth. 1) By category, 1H24's revenue from vacuum cleaners and various small household appliances was 0.967/0.677 billion yuan respectively, +26%/+56% over the same period last year. 2) In the vacuum cleaner category, the company 2H23 is influenced by large customers removing inventory, and we estimate that 1H24 TTI orders are basically stable. At the same time, the vacuum cleaner project of the company's new customer, SharkNinja, was gradually mass-produced in 1H24, contributing to revenue growth. 3) Among various small household appliances, the company cooperated steadily with HOT, benefiting from customer supply chain integration; the company entered SharkNinja in the personal care category, and new projects such as 1H24 environmental household appliances are also gradually being scaled up. We believe that the company's small household appliances business is expected to maintain a high growth rate in the second half of the year under the impetus of new projects.

The auto parts business has been heavily targeted, and the brake motor business has begun to gain strength. 1) 1H24's auto zero business grew steadily, achieving revenue of 0.148 billion yuan, +69% over the same period last year. 2) 1H24 added 7 new designated projects to its auto zero business, and the total sales amount over the entire life cycle exceeded 1.5 billion yuan. As of 1H24, the company has a total of 37 targeted projects, and we estimate that the total sales amount over the entire life cycle exceeds 6 billion yuan. 3) Compared with EPS motors, the company's brake motors are still small. With the gradual increase in line control market penetration, the company plans to increase investment in brake motors and market development.

The company's operating performance has grown steadily. 1) The company's 1H24/2Q24 gross profit margin was 17.7%/17.9%, the year-on-year flat/+0.6ppt, benefiting from the gradual increase in the share of new SharkNinja projects. 2) The company was greatly affected by exchange rate fluctuations. 1H24's exchange revenue decreased by 27.51 million yuan year on year, and the financial expenses ratio was +3ppt year over year. 3) After excluding the impact of exchange profit and loss, 1H24's net profit was +44% year-on-year, and the net profit margin was +0.4ppt year-on-year.

Development trends

1) The company continues to enrich its product matrix. In the kitchen appliance business, dishwashers have begun to be gradually mass-produced. As of 1H24, we are optimistic that the company's category expansion will bring about an increase in performance. 2) The company expanded production capacity in Vietnam to deal with potential tariff risks. The Vietnamese vacuum cleaner factory has been completed and put into operation, a research and development center has been set up, and the “Vietnam factory has an annual output of 3 million small household appliances” launched this year.

Profit forecasting and valuation

Due to uncertainty about the pace of the company's expansion of new categories, we lowered 2024/2025 net profit by 7%/4% to 0.418/0.521 billion yuan. The current stock price corresponds to 13.8 times/11.1 times 2024/2025 P/E. Maintaining an outperforming industry rating, but due to a reduction in profit forecasts and a decline in the sector's valuation center, we lowered our target price by 22% to 20.14 yuan, which corresponds to 17.9 times/14.4 times 2024/2025 P/E, which has 30% upside compared to the current stock price.

risks

Market demand fluctuation risk; exchange rate fluctuation risk; international trade policy risk.