Event: On August 27, 2024, Dun An Environmental released its 2024 semi-annual report. 2024H1 achieved revenue of 6.346 billion yuan (+13.87%), net profit due to mother 0.474 billion yuan (+44.02%), and net profit not attributable to mother 0.465 billion yuan (+10.23%). Looking at a single quarter, 2024Q2's revenue was 3.72 billion yuan (+18.76%), net profit due to mother 0.265 billion yuan (+59.68%), after deducting non-attributable net profit of 0.266 billion yuan (+7.60%).

The 2024H1 automotive thermal management business increased dramatically, and domestic sales achieved double-digit growth. 1) By business:

2024H1's refrigeration accessories/refrigeration equipment/automobile thermal management revenue was 4.974/0.705/0.265 billion yuan, respectively, +15.74/+2.91/ +93.22%, respectively. Among them, the automotive thermal management business increased significantly, or the demand for downstream new energy vehicles began, compounded by the continuous optimization of the company's product technology, which was driven by deepening cooperation with leading customers. 2) By region: 2024H1's domestic/overseas revenue was 5.244/1.102 billion yuan respectively, +14.97/ +8.91% year-on-year respectively. Domestic sales performance was better, achieving double-digit growth.

2024Q2 profitability restoration, good control on the cost side. 1) Gross profit margin: 2024Q2's gross profit margin of 18.34% (-0.61pct) may be affected by increased competition in the industry to reduce terminal prices, changes in product structure, and high prices of bulk raw materials such as copper and aluminum. 2) Net interest rate: 2024Q2 The company's net interest rate was 7.11% (+1.86pct), and profitability recovered year-on-year. 3) Cost side: 2024Q2's sales/management/R&D/finance expense ratios were 2.41/2.93/3.38/ -0.30%, respectively, -0.71/-0.23/-0.12/-0.04pct, respectively. Overall, good control, operating efficiency or continuous improvement were achieved.

Investment advice: On the industry side, as air conditioning production schedules are active and the penetration rate of new energy vehicles increases, the size of the upstream parts market is expected to continue to expand. On the company side, as a leader in refrigeration components, the company may share industry growth dividends with scale and technical advantages; the acquisition of Shanghai Dachuang will enable the expansion of the NEV thermal management business and is expected to continue to contribute to revenue and performance growth. We estimate that in 2024-2026, the company's net profit to mother will be 0.96/1.138/1.34 billion yuan, the corresponding EPS will be 0.90/1.07/1.26 yuan, respectively, and the PE corresponding to the current stock price will be 11.03/9.31/7.90 times, respectively. Maintain a “buy” rating.

Risk warning: raw material price fluctuations, overseas companies' operating risks, exchange rate fluctuations, risk of participating companies' performance promises, etc.