Incident: Joyang Co., Ltd. announced its 2024 semi-annual report. The company achieved revenue of 4.39 billion yuan in the first half of the year, YoY +1.6%; realized net profit of 0.18 billion yuan, YoY -29.0%; realized net profit without deduction of 0.21 billion yuan, YoY -6.6%. After conversion, the company achieved revenue of 2.32 billion yuan, YoY -4.3% in a single quarter; realized net profit of 0.05 billion yuan, YoY -63.9%; realized net profit of 0.09 billion yuan without return to mother, YoY -21.3%. We believe that domestic sales operations in Q2 were stable, and export sales were under pressure in the short term, and we look forward to subsequent business improvements.

There was a year-on-year decline in Q2 revenue in a single quarter: Looking at the subregion: 1) In terms of domestic sales, H1's domestic sales revenue YoY was +4.7%. Domestic consumption of small kitchen appliances is lackluster. We infer that in Q2 Joyang's domestic sales revenue was basically the same year on year. Since this year, Joyang has continued to iterate and upgrade its products, launching new Space Technology 3.0 series products such as the 0-coated 40N9U Pro, Space Heat Xiaojing R5 Pro, and the Omnipotent Nutritionist Y8. At the same time, the company insists on improving the channel layout and continuing to expand emerging channels. 2) In terms of export sales, H1's export revenue YoY -9.7%. Affected by fluctuations in foreign OEM demand, we infer that the company's Q2 export revenue declined year-on-year. Looking ahead, as domestic and foreign consumption of small household appliances gradually recovers, Joyang continues to expand new products and channels, and the revenue scale is expected to continue to rise.

Q2 gross margin improved year on year: Joyang Q2 gross margin was 29.1%, +2.6 pct year on year.

The company's gross margin increased year-on-year. We think the main reason is: 1) In Q2, domestic consumption in categories such as soy milk machines and juicers improved, which led to an increase in the company's revenue in the food processing machine series, which has a relatively high gross margin. As a reference, the revenue of the H1 Joyang food processing machine series was +13.6% YoY, which is better than the company's overall revenue growth rate. 2) Export revenue declined year-on-year in Q2, when gross margin was relatively low.

Q2 profitability declined year-on-year: Joyang's Q2 net profit margin was 2.0%, -3.2pct year on year. The company's net interest rate declined year-on-year, mainly due to: 1) The company increased its investment in marketing promotion and R&D. The cost ratio was +3.4 pct year-on-year during the Q2 period. Among them, the sales expense ratio and R&D expense ratio were +3.4 pct and +0.7 pct, respectively. 2) Due to the impact of depreciation on trust products, Q2 fair value change revenue as a year-on-year ratio of revenue -2.3 pct. Looking ahead, the company's profitability is expected to improve as revenue gradually picks up and scale effects increase.

Q2 operating cash flow small net outflow: Joyang Q2 net operating cash flow -0.09 billion yuan compared to +0.03 billion yuan in the same period last year. The company's net operating cash flow declined, mainly due to a decrease in the scale of revenue, YoY -15.9% of the cash received from sales of goods and provision of services in Q2. At the end of the Q2 period, the company's monetary fund balance was 2.68 billion yuan, YoY +49.4%, and cash reserves were quite abundant.

Investment advice: Joyang actively expands product categories, optimizes product structure, and continues to promote direct marketing channel transformation, which is expected to help the company develop with high quality in the long term. As consumption of small household appliances gradually recovers, the company's operations are expected to show greater flexibility. The company's EPS for 2024 to 2026 is expected to be 0.48/0.68/0.79 yuan respectively, maintaining a buy-A investment rating, giving the company a dynamic price-earnings ratio of 25 times in 2024, which is equivalent to a six-month target price of 12.01 yuan.

Risk warning: Competition in the industry has intensified, raw material prices have risen sharply, and the RMB has appreciated sharply.