Incident: The company achieved operating income of 0.84 billion yuan in 2024H1, down 1.8% year on year, mainly due to increased competition in the tram industry, which affected the company's revenue; realized net profit of 0.09 billion yuan to mother, an increase of 5.4% year on year; net profit after deducting non-return to mother was 0.09 billion yuan, an increase of 5% year on year. In the second quarter of 2024, the company achieved revenue of 0.45 billion yuan, a year-on-year decrease of 3.8%; realized net profit of 0.04 billion yuan, a year-on-year decrease of 1.3%; net profit after deducting non-return to mother of 0.04 billion yuan, a year-on-year decrease of 0.5%.

Net interest rates have increased, and expense ratio control is better. Profit side: 2024H1's gross sales margin/net margin was 17.7%/10.9%, respectively, -0.3 pp/+0.7 pp; 24Q2 gross margin/net margin was 15.9%/9.4%, respectively, -1.1 pp/+0.2 pp, respectively. The main reason was that the company strengthened its control over the supply chain and compounded the cost advantages brought about by its own technological progress. Expense side: The company's 2024H1 sales/management (excluding R&D) /finance expense ratios were 0.5%/1.8%/-1.1%, respectively, compared to +0.03pp/+0.1pp/ -1.2pp, respectively. Among them, the decrease in the financial expense ratio was mainly due to the receipt of funds raised by the company's public offering of shares, and the increase in bank interest income earned. The company continued to increase R&D investment. The 2024H1 R&D cost rate was 3.4%, an increase of 0.8 pp over the previous year.

It focuses on research in the field of electrical connections, and has accumulated deep technology. The direct welding technology introduced by the company in 2023 has entered the batch application stage in 2024H1. This technology changed the original requirement that FPC had to be transitioned through nickel sheets, eliminated the cost of nickel sheets and SMT processes, and directly welded FPC to aluminum bars through ultrasonic technology, greatly saving the cost of FPC components. The company 2024H1 is the first in the industry to launch film technology, which uses single-layer film hot pressing technology. Compared with previous hot pressing technology, material costs have been reduced, the degree of automation has increased, and the overall cost of the product has been reduced. In addition, the company has excellent cost control. The automated production lines for direct welding technology and thin film technology launched by 2024H1 are all independently developed and manufactured by the company's automation team, and have successfully passed the customer's mass production verification. The company took the lead in mastering these two automation technologies and has a pioneering advantage in the industry, which helps promote these two technologies on a large scale.

The energy storage battery connection system is expected to benefit from major downstream customers and drive the company's growth. According to the company's semi-annual report, the company's battery connection system products are currently being supplied in batches for energy storage projects such as Tesla. According to Tesla's announcement, Tesla's 2023-2024Q2 energy storage capacity is 3.9/3.7/4/3.2/4.1/9.4 GWh each quarter. 2024Q2 is showing an explosive growth trend. In addition, Tesla is planning a project with an annual production capacity of 40 GWh in Lingang, Shanghai, which is expected to be gradually put into operation in 2025. The company is deeply tied to Tesla and is expected to fully benefit from the growth of major customers.

Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 2.45 billion yuan, 3.37 billion yuan, and 4.29 billion yuan respectively, and net profit to mother is expected to grow by 31.5%/42.4%/27.9% year-on-year in the next three years, respectively.

The company is a leading domestic battery connection system company. It has a unique hot pressing process and competitive advantages in self-developed equipment. It has a “tram+energy storage” two-wheel drive, and maintains a “buy” rating.

Risk warning: the risk that the penetration rate of new battery connection system products falls short of expectations; risk of product development falling short of expectations; risk of product price reduction being too large due to increased competition in the industrial chain; risk that new customer expansion falls short of expectations; risk of exchange rate fluctuations affecting the company's overseas business; and the risk of a single major customer in the main business is relatively high.