1H24 results are in line with our expectations

The company announced 1H24 results: 1) Revenue of 8.386 billion yuan, +10.5% YoY; net profit to mother 2.239 billion yuan, +22.9% YoY. 2) Corresponding to 2Q24 revenue of 4.583 billion yuan, +7.6% year on year; net profit to mother of 1.309 billion yuan, +20.6% year over year. 3) The company's performance is in line with our expectations.

The core business grew steadily, and the market share increased: 1) Since 2Q24, domestic real estate completion and consumer demand have weakened markedly, which has had a significant negative impact on the company's core businesses such as converters, wall opening, and lighting. 2) Bull increased its market share through new product iteration and channel expansion. The converter further enriched rail socket SKUs, launched a special charger for battery car charging, and launched the high-end Butterfly Wing II ultra-thin series, as well as various innovative products such as invisible sockets and whole-house WiFi to help the core business achieve steady growth. 1H24 Bull's electricity connection revenue was 3.87 billion yuan, +5% year on year; smart electric lighting revenue was 4.211 billion yuan, +12% year over year. 3) As a newly developed business, new energy has continued to grow rapidly since 2021. 1H24 Bull launched more fast-charging DC pile product lines. The channel side continues to increase the coverage and penetration rate of offline professional channel system outlets. It has developed more than 0.022 million terminal outlets, and achieved new energy revenue of 0.289 billion yuan, +121% over the same period last year.

Improved operating efficiency and strong profitability: 1) 2Q24 gross profit margin was 43.6%, +0.4ppt year on year. The company continues to promote cost reduction and efficiency, factory automation and digital supply chain construction to improve production efficiency. At the same time, hedging is used to hedge upward pressure on costs, and profits improve quarterly. 2) 1H24 focuses on the expansion of flagship stores 4.0, building all categories of flagship stores and expanding installation channels. 1Q24/2Q24 sales expenses were 7.4%/8.5%, compared to +1.0/+1.1ppt, respectively. Management expenses are strictly controlled, and the 1Q24/2Q24 management fee ratio was 4.2%/3.2%, which was the same as the previous year. 3) 1H24's net operating cash flow was 2.361 billion yuan, -21% year-on-year, mainly due to changes in the business structure in the first half of the year, which led to an increase in advance payments, a decrease in advance payments, and an increase in offline channel expenses.

Development trends

Category expansion and globalization open up a second growth curve. 1H24 Bull has begun to enter the power tool market, positioning itself as a “powerful bull”, launching nearly 30 professional products, covering various categories such as angle grinders, hammers, drills, fastening, and cutting; overseas business is progressing rapidly, and categories such as flexible and unbreakable sockets adapted to local needs are launched in Southeast Asia; we believe it is expected to drive the company's continuous growth in the medium to long term.

Profit forecasting and valuation

Demand on the real estate completion side and consumer side has clearly weakened since 2Q24, and we lowered our 2024/2025 net profit of 3%/5% to 4.415 billion yuan/4.97 billion yuan. The current stock price corresponds to 19.8 times/17.6 times the 2024/2025 price-earnings ratio. Maintaining an outperforming industry rating, due to the sector's recent decline in valuation, we lowered our target price by 11% to 86 yuan, corresponding to 25.2 times/22.4 times the 2024/2025 price-earnings ratio, with 27% upward space.

risks

Market demand fluctuation risk; raw material price fluctuation risk; new product expansion falls short of expectations.