Incident: In 2024, the company achieved revenue of 0.896 billion yuan, +0.44% year on year, net profit to mother of 0.004 billion yuan, or -88.05%; of these, 2024Q2 achieved revenue of 0.532 billion yuan, +10.35% year on year, and net profit to mother 0.008 billion yuan, or -52.4% year on year.

The scale of the whole machine business has shrunk, and the company has taken active countermeasures

By business, the decline in the company's OEM revenue is quite obvious. 24H1 hose fittings/materials sales revenue was +41.7%/+28.6% YoY, and the OEM subsidiary Suzhou Shangteng's revenue growth rate was -59% YoY. Due to intense market competition, compared with the same period last year, the sales price of some of the company's products has declined, and revenue from the domestic OEM business has declined. Under these circumstances, the company has taken a series of effective measures: 1) Continue to actively utilize the good reputation and reputation that the company has accumulated over a long period of time in the field of cleaning appliances, and strive to introduce high-quality brand customers into the vacuum cleaner OEM business. New customers in the OEM business that have gradually been mass-produced since 2023H2 include LG, Supor, Bosch, etc. 2) Continue to maintain investment in technology research and development, increase the progress of new product development and expand the quantity of new product development. 3) Continue to focus on the vacuum cleaner OEM business platform, extend the industrial chain, expand product types one after another, and further improve the company's internal industrial collaboration and OEM component ownership rate, so as to enhance the company's continued competitiveness. The vacuum cleaner motor business of Suzhou Hongshun Company, a wholly-owned subsidiary of 24H1 Company, has gradually begun mass production and is used for self-sufficient sales. In the future, it will help the company further improve its supply chain system. 4) In terms of overseas base construction, the company mainly relies on the existing business of Vietnam's SUNTONE company to focus on promoting the construction of a clean electrical appliance production base project in Vietnam. Currently, the project is in the bidding process for plant construction.

Reduced prices for some products and weak machine performance put pressure on profits

In 2024, H1's gross margin was 11.43%, -1.55pct year on year, net margin was 0.45%, year-on-year -3.83pct; of these, 2024Q2 gross margin was 12.27%, -0.04pct year on year, and net margin was 1.52%, and -2.21pct year on year. By business, 24H1's gross margin for hose fittings products, which account for a relatively large portion of revenue, was -3 pct. The net profit of the OEM subsidiary Suzhou Suntech was -0.023 billion yuan, -0.035 billion yuan year on year. The sales price of some of the company's products declined, as well as the decline in revenue and gross profit from the domestic OEM business, putting pressure on profit levels.

Fewer exchange earnings lead to fluctuations in financial expense rates

The company's 2024 H1 sales, management, R&D, and financial expenses rates were 0.96%, 6.05%, 3.56%, and -0.81%, respectively, -0.01, +0.24, +0.65, and +0.92pct; of these, the 24Q2 quarterly sales, management, R&D, and financial expenses rates were 0.69%, 5.36%, 3.24%, and -1.14%, respectively, +0.16, -0.68, +0.49 pct. The company's financial expense ratio fluctuates greatly, mainly due to a decrease in exchange earnings.

Investment advice: Due to the fierce competitive environment, the company's OEM business is under pressure. The company currently lays out the upstream industry around its core business, and has also completed the transformation of the customer structure. In the future, as the self-control rate increases, the company's profit level is expected to improve. According to the company's interim report, we have appropriately lowered our revenue and gross profit margin. We expect net profit to be 0.03/0.05/0.07 billion yuan (previous value 0.05/0.07/0.1 billion yuan) for 24-26, corresponding to dynamic PE 45.2x/26.4x/18.9x, maintaining the “gain” rating.

Risk warning: raw material price fluctuation risk; market competition risk; alternative product risk; machine order falling short of expectations; exchange rate risk; OEM penetration rate falling short of expectations, etc.