24Q2 revenue resumed positive growth, but earnings were still under pressure year over year

Okeyi released its semi-annual report. In 2024, H1 achieved revenue of 0.579 billion yuan (yoy +8.75%), net profit of 60.0942 million yuan (yoy -44.58%), deducting non-net profit of 37.7764 million yuan (yoy -55.60%).

Among them, Q2 achieved revenue of 0.315 billion yuan (yoy +26.73%, qoq +19.53%) and net profit of 30.245 million yuan (yoy -38.45%, qoq +1.33%). As demand in the tool industry fell short of expectations, and industry competition intensified, and the company's profit forecast was lowered, we expect the company's net profit to be 1.48, 1.82, and 219 million yuan respectively in 2024-2026 (down 27%, 24%, and 22% from the previous values of 2.03, 2.40, and 2.81 in 2024-2026). Comparatively, the company's 2024 Wind unanimously expected an average PE value of 34 times. Considering the relatively low growth rate of hard alloy products, the company was given 25 times PE in 24 years, with a target price of 23.3 yuan (previous value 32 yuan), maintaining a “buy” rating.

Export growth has nearly doubled, supporting positive revenue growth

By business, 24H1's CNC tool/hard alloy products business achieved revenue of 0.32/0.25 billion yuan respectively, +4% and +14% over the same period last year. The PMI for April to June was 50.4, 49.5, and 49.5, respectively, putting pressure on tool demand. The company's new project entered the production stage in the first half of the year, and the overall production and sales volume of tungsten carbide tool products maintained rapid growth. New products such as high-efficiency rotary cutters, stainless steel turning tools, and thread cutters continue to be introduced to the market, and market feedback is good. 24H1 achieved domestic/overseas revenue of 0.46/0.11 billion yuan, -2% and +95%, respectively. The company seizes export opportunities, increases overseas development efforts, and enriches overseas sales channels. CNC tool exports accounted for 30% in the first half of the year. The average export price was 11.83 yuan/piece, and the product structure showed a high-end trend.

Profitability declined due to declining capacity utilization and increased R&D investment. 24H1 achieved gross profit and net profit margins of 26.1% and 10.4%, respectively. The decline in gross margin was mainly due to a decline in capacity utilization. The total fixed assets of the company were reported to be 1.086 billion yuan, an increase of 0.3 billion yuan over mid-'23, or +39% year-on-year, leading to an increase in depreciation expenses. The company's sales/management/finance/R&D expense ratios in the first half of the year were -0.1/-1.0/+2.3/+1.9pct, respectively. The decrease in the management expense ratio was mainly due to a decrease in equity incentive accrual expenses. The increase in the financial expense ratio was mainly due to an increase in loan interest and +62% year-on-year in R&D expenses, mainly due to an increase in new product development expenses.

Risk warning: 1) The progress of products going overseas fell short of expectations; 2) the domestic competition pattern deteriorated beyond expectations; 3) raw material prices rose beyond expectations.