1H24 results fall short of our expectations

The company announced 1H24 results: revenue of 5.75 billion yuan, a year-on-year decrease of 18.8%, and net profit of 0.46 billion yuan to mother, a year-on-year decrease of 61.7%, lower than our expectations, mainly due to a slowdown in the pace of domestic lithium battery equipment inspection. Looking at a single quarter, 2Q24's revenue was 2.44 billion yuan, down 36.0% year on year, and net loss to mother was 0.11 billion yuan, down 116.5% year on year.

The pace of domestic lithium battery acceptance is slowing down, and overseas revenue is growing rapidly. 1H24 lithium battery equipment/smart logistics/PV revenue was 3.9 billion yuan/1.3 billion yuan/0.4 billion yuan, -27.1%/+40.4%/+41.5% year-on-year. Among them, the decline in lithium battery equipment revenue was mainly due to a slowdown in domestic demand for lithium battery equipment and delays in the pace of equipment acceptance. 1H24's overseas business revenue was 1.09 billion yuan, +159.6% year over year, growing rapidly.

Depreciation accruals increased year over year. 1H24's comprehensive gross margin was 36.3%, down 3.8ppt year on year. Among them, the gross margin of lithium battery equipment/intelligent logistics system decreased by 1.7 ppt/7.9ppt year on year, respectively. The cost rate for the 1H24 company period was 25.7%, up 5.2 ppt year on year. The total asset and credit impairment losses of the 1H24/2Q24 company were 0.38 billion yuan/0.33 billion yuan, an increase of 0.25 billion yuan/0.27 billion yuan over the previous year, mainly due to deductions such as accounts receivable. 1H24's net profit margin was 8.0%, down 9.0ppt year on year.

Cash flow was higher year over year. The net cash flow from 1H24's operating activities was 1.79 billion yuan, an increase of 0.25 billion yuan over the previous year. As of the end of 1H24, the company's accounts receivable and notes were 9.59 billion yuan, an increase of 1.89 billion yuan over the previous year; contract liabilities were 11.42 billion yuan, an increase of 0.81 billion yuan over the previous year.

Development trends

Follow the progress of domestic lithium battery acceptance. Currently, domestic demand for lithium battery equipment is weak, and the pace of acceptance by downstream customers is slowing down, which has had a certain impact on revenue recognition, impairment accrual, profit margins, etc. of lithium battery equipment vendors, and has further led to a decline in demand for new orders. We recommend paying attention to the subsequent upward trend in the operating rate of downstream domestic lithium battery customers, thereby driving an improvement in the pace of inspection and supporting the increase in the company's revenue and profit.

Follow the process of signing and landing new overseas orders. In recent years, as domestic and foreign battery manufacturers and car manufacturers accelerate their overseas market layout, the demand for lithium battery equipment in overseas markets has increased. The company has continued to expand the overseas lithium battery market, and the company is also developing overseas photovoltaic and 3C businesses. 1H24's overseas business revenue accounted for 19.0%, and gross margin increased 27.4ppt to 39.5% year-on-year. It is recommended to continue to pay attention to the growing trend of new orders and project implementation in the company's overseas business. We believe it is expected to contribute to the company's revenue and profit growth.

Profit forecasting and valuation

Maintain outperforming industry ratings. Considering the slowdown in domestic lithium battery equipment acceptance and impairment charges, the profit forecast for 2024 was lowered by 45% to 1.78 billion yuan, and a profit forecast of 2.19 billion yuan for 2025 was introduced. The current transaction is 12x/10x 24e/25e P/E. Considering the profit reduction and the slowdown in domestic lithium battery equipment acceptance, the target price was lowered by 43% to 19.00 yuan, corresponding to 17x/14x 24e/25e P/E, with 35% upward space.

risks

Overseas projects fell short of expectations, and domestic lithium battery equipment deliveries fell short of expectations.