Incident: On the evening of August 28, Beijing time, Yihua Co., Ltd. released its 2024 semi-annual report. In 2016, H1 achieved operating income of 3.172 billion yuan, +42.63% year-on-year, and achieved net profit of 0.173 billion yuan to mother, or +161.92% year-on-year.

Q2 Continued the high growth trend, and profitability improved markedly. Looking at a single quarter, the company achieved revenue of 1.643 billion yuan in Q2, an increase of 27.66% over the previous year, and realized net profit to mother of 0.087 billion yuan, an increase of 71.33% over the previous year. In the field of connectors, the company 24H1 achieved revenue of 1.114 billion yuan, an increase of 40.16% over the previous year.

Currently, the company is centered on communication connectors. With the customer resources and technical advantages accumulated in the field of communication connectors, the company is continuously strengthening the expansion and upgrading of consumer electronics connector products, and strategically arranging the fields of automotive electronics products and smart terminal consumer electronics products to further expand the company's product line. In terms of solar brackets, the company 24H1 achieved revenue of 1.932 billion yuan, an increase of 41.13% over the previous year. As a professional solar tracking bracket manufacturer, the subsidiary Yihua New Energy has long been committed to the R&D, production and sales of the core components of photovoltaic brackets. It has received a good customer reputation in the international market and achieved steady growth in shipments. Its core customer is NexTracker, a leading global manufacturer in the field of photovoltaic systems, which ranks first in the field of photovoltaic tracking brackets.

The US factory is gradually being put into operation, focusing on overseas layout. The company is determined to expand overseas incremental market space. The US factory has begun normal production, production capacity is still climbing, and production lines will continue to be increased according to demand. The company's local factory is conducive to being close to serving core customers, establishing deep cooperative relationships with NexTracker, GCS, FTCSolar, etc., and is expected to fully enjoy the boom in overseas photovoltaic stents.

The company issued an equity incentive plan to further enhance the company's vitality. The company issued an equity incentive draft on December 13, 2023, and an adjustment plan on January 9. In fact, 6.8197 million restricted shares were awarded to 290 incentive recipients at a price of 18.52 yuan/share, accounting for 4% of the company's total share capital, using January 8, 2024 as the grant date. The performance assessment goals are: using 2023 as the base year, net profit growth of not less than 30%/50%/70% in 24/25/26; revenue growth of not less than 30%/50%/70% in 24/25/26. The sales limit ratio for incentive targets is divided into three levels A, B, and C, and the corresponding unlock ratios are 100%, 70%, and 0%, respectively. We believe that the issuance of equity incentives is conducive to further stimulating enterprise vitality.

Investment advice: We expect the company's net profit to be 0.367 billion yuan, 0.435 billion yuan, and 0.543 billion yuan respectively in 2024-2026. The PE corresponding to the current stock price is 19X, 16X, and 13X, respectively. We expect that with the commissioning of the US factory and the acceleration of the expansion of the automotive and consumer electronics connector business, the company will have strong growth potential. We are optimistic about the company's subsequent development, and maintain a “recommended” rating.

Risk warning: Downstream customer expansion progress falls short of expectations; risk of international trade conflicts; risk of overseas production capacity expansion falling short of expectations.