Key points of investment:
Q2 performance fell slightly short of expectations. In 2024, H1 achieved operating income of 3.366 billion yuan, a net profit of 0.385 billion yuan, a net profit of 0.385 billion yuan, a net profit of 0.385 billion yuan over the same period, and realized net profit of 0.321 billion yuan after deduction, or -8.28% year over year; of these, Q2 achieved operating income of 1.783 billion yuan in a single quarter, -12.64% year over year, and achieved net profit of 0.264 billion yuan compared to the same period. 0.218 billion yuan, -20.63% YoY. The Q2 performance was slightly lower than our previous expectations in performance forecasting. We expect this is mainly due to factors such as fierce price competition in the context of weak overall demand in the industry.
The multi-channel layout continues to advance. Looking at offline business, in terms of offline business, in 2024, H1 continued to upgrade its store image, create solution zones, enhance the store entry experience for consumers without headlights, and accelerate retail channel layout; in distribution channels, through accurate distribution of product portfolios and terminal marketing materials, 24H1 maintained a good business trend and further expanded market coverage. In terms of commercial licensing business, the company 24H1 won the photovoltaic module industrial park project of a world-renowned solar technology company, the Xiong'an New Area Telecom Smart City Industrial Park project, and a national real estate office light board strategy project to meet the high-quality lighting needs of different fields and scenarios. In terms of e-commerce business, the company accurately lays out hot spots, captures user pain points and potential needs, and continuously improves intelligent customer service, AI live streaming, etc., and optimizes the user service system. Through continuous product structure optimization, the gross margin level has steadily increased. Overseas business continues to focus on key regions, expand the coverage of retail and distribution outlets, empower terminals with smart lighting technology and solutions, and win smart lighting projects such as smart homes in Myanmar, smart offices in Indonesia, the Royal Conference Hall in Oman, and Amsterdam International Airport in the Netherlands. At the same time, it has also won solar street lighting projects and Ministry of Housing and Construction building projects in Africa, actively participating in infrastructure construction in countries along the “Belt and Road” and expanding the brand's overseas influence.
The 24H1 net margin hit a new high since 2016, and profitability continued to improve. The company achieved a gross sales margin of 39.29% in H1 in '24, +1.09pcts year-on-year. We expect it is mainly due to factors such as the company's platform-based cost reduction. In terms of period expenses, the company's 24H1 sales expense ratio was 18.94%, +1.59pcts year on year, management/ finance expense ratios were 4.45%/-1.47%, +0.77/+0.16pct year on year, and R&D expenses rate -0.54 pct year on year 4.75%. In the end, it recorded the company's 24-year H1 net profit rate of 11.47%, +0.14pct year on year, a record high for the same period since 2016.
Maintain a “buy” investment rating. Considering the price competition situation in the industry, we lowered our profit forecast. It is estimated that in 24-26, the company will achieve net profit of 0.893/0.979/1.056 billion yuan (previous value was 1.095/1.222/1.352 billion yuan), -3.4%/+9.7%/+7.8%, corresponding to the current price-earnings ratio of 12/11/10 times, respectively. The company's platform-based cost reduction measures have had remarkable results, and the net interest rate level continues to rise. As downstream demand gradually recovers, the company's performance is expected to accelerate.
At the same time, the company's dividend ratio increased to over 60% for the first time since listing, reaching 67.7%. Assuming the same dividend level of 0.85 yuan per share in '23, the current dividend ratio is 6.0%, which has a long-term allocation cost ratio, and maintains a “buy” investment rating.
Risk warning: risk of fluctuating raw material prices; industry competition increases risk.