Incident: The company released its 2024 semi-annual report. 24H1 achieved revenue of 1.492 billion yuan, a year-on-year increase of 12.02%; realized net profit to mother of 0.301 billion yuan, a year-on-year decrease of 2%; gross margin decreased 1.28 pct to 31.74% year on year, and net margin decreased 2.89pct to 20.21% year on year. 24Q2 achieved revenue of 0.801 billion yuan, up 7.85% year on year and 16.01% month on month; realized net profit of 0.16 billion yuan, down 13.52% year on year and up 12.98% month on month; gross profit margin of 32.51%, down 1.23 pct year on year, up 1.67 pct month on month; net profit margin 19.96%, down 4.93 pct year on year and 0.54 pct month on month.

24H1's revenue grew steadily, and performance was slightly pressured by falling domestic gross margin and rising cost ratios. 24H1 achieved revenue of 1.492 billion yuan, a year-on-year increase of 12.02%, and realized net profit to mother of 0.301 billion yuan, a decrease of 2% year-on-year. By product, 24H1 edge banding machine/CNC drill/machining center/cutting saws/accessories/automation and wooden door equipment/other businesses achieved revenue of 5.94/3.42/1.84/1.67/0.116/0.068/0.021 billion yuan respectively, with year-on-year changes of +3.45%/+39.37%/-10.35%/+31.26%/-8.22%/+71.48%/+51.72%. By region, 24H1 domestic revenue also increased by 12.62% to 1.091 billion yuan, gross margin decreased by 2.46 pcts to 29.96%; overseas revenue also increased 10.41% to 0.401 billion yuan, and gross margin also increased by 1.96 pcts to 36.57%.

The fee rate increased slightly during the period. 24H1's sales/management/R&D/finance expenses rates were 1.53%/3.98%/3.89%/-0.49%, respectively, with year-on-year changes of +0.09/+0.8/+0.69/ -0.3pct, respectively. Due to factors such as exhibition and promotion expenses and the commissioning of the new factory area, the cost rate increased during the period.

Product innovation and “expansion and decline” marketing strategies continue to advance to consolidate core competitiveness. The company focuses on product research and development. During the reporting period, it launched new products such as front-end intelligent silos for furniture production, robot sawing centers, and composite milling CNC drilling centers to improve standardized products throughout the custom furniture process. On the other hand, the company adheres to the principle of “expansion and decline”, set up Kaiao Intelligence in the high-end market to provide high-performance and efficient intelligent manufacturing equipment for high-end customer groups, and use the cost advantages brought about by economies of scale to provide cost-effective products for small and medium-sized customers.

Investment advice: We expect the company to achieve revenue of 3.046/3.509/4.044 billion yuan in 24-26, and achieve net profit of 0.657/0.756/0.881 billion yuan, corresponding to PE 9.98/8.67/7.44 times, respectively, and maintain a “highly recommended” rating.

Risk warning: risk of fluctuations in the real estate market, risk of changes in the international trade situation, technology research and development process falling short of expectations