occurrences

On August 27, Yunji Group released its 2024 semi-annual performance report: In 2024, H1 achieved operating income of 0.593 billion yuan (YoY +26.40%), net profit attributable to mother 0.061 billion yuan (YoY +23.98%), net profit not attributable to mother 0.059 billion yuan (YoY +28.53%). Among them, Q2 2024 achieved operating income of 0.329 billion yuan (+21.40% year over year), net profit to mother of 0.03 billion yuan (year-on-year decrease +36.36%), and net profit of non-return to mother of 0.029 billion yuan (+31.82% year over year). The company's revenue growth was mainly due to an increase in delivery volume based on customer demand.

Key points of investment

The boom in the downstream mining industry is expected to drive increased demand for conveyors

From 2021 to 2023, fixed asset investment in China's mining industry showed a steady upward trend. The average growth rate reached 5.83%, and the industry is in a high boom range. Looking at segments, fixed investment amounts in the coal mining and washing industry, ferrous metal ore mining industry, and non-ferrous metal ore mining and selection industry have also maintained a high growth rate. According to data from January to July 2024, fixed asset investment in the mining industry increased 19.3% year over year, maintaining a relatively rapid growth trend. The company's main customers are various mining companies, and product demand is closely related to mining prosperity. In the mine development process, it is necessary to purchase various equipment, including mining equipment, filtration equipment, crushing and grinding equipment, mining equipment, and transportation equipment. Among them, transportation equipment accounts for about 20% of mining equipment procurement costs. The boom in the mining industry will drive the company's demand for conveyor equipment to rise.

Actively laying out overseas markets, the cumulative number of on-hand orders reached a record high. The company responded positively to national policies, actively addressed “Belt and Road” development opportunities, “went global” with large state-owned enterprises, and cooperated to undertake overseas business.

Since 2023, the company has taken the cooperation of the Simandou Iron Ore Project, the Western Cement Ethiopia Project, China Steel Brazil Company, and Indonesia's Sanlin Company as an opportunity to continue to strengthen the tracking, research and service of overseas projects of Chinese enterprises, and continue to further develop customers of the world's top 40 mining companies. In January 2024, the company established Australia Sun Company and in May of the same year established Guinea Sun Company to further improve the company's global layout. In June 2024, Australia's Sun Company purchased VliConsulors PTY LIMITED, Uni-Rod Pty Ltd, TytonConveyors Pty, which Wiley Limited held for 8 million Australian dollars. Limited has 100% equity and related intellectual property rights. The company will have a fully structured Australian business team, mature management system, and perfect business outlets and market channels. The company's on-hand orders were 2.4 billion yuan at the end of the first quarter of 2024. Currently, 60% of the orders in hand are overseas orders. As the company strengthens its overseas layout, it is expected that the amount of orders in hand and overseas orders will continue to increase.

A comprehensive cooperation agreement was signed with Huawei, and the digital intelligence process was accelerated

On July 16, 2024, the company and Huawei signed a “Comprehensive Cooperation Agreement”. Huawei will support the company in joint program design, global ecological cooperation, large-scale model development, and talent training and technical support to help the company build intelligent manufacturing capabilities and integrated digital solutions and service capabilities for the entire “ore flow” scenario. At present, Huayun Zhiyuan, a wholly-owned subsidiary of the company, has signed the “Huayun Zhiyuan Cloud Platform Construction Project HUAWEI Cloud Stack Sales Agreement” with HUAWEI CLOUD. The cooperation project is gradually being implemented, which will help the company promote the digital transformation of the industry.

Good cost control and significant improvement in profitability

In 2024, the H1 sales expense ratio was 4.72% (YoY -0.32pct), the management expense ratio was 5.55% (YoY +0.12pct), the R&D expense ratio was 3.64% (YoY -0.21pct), and the financial expense ratio was 1.47% (YoY +3.07pct). The increase in the company's management expense ratio is mainly due to the year-on-year increase in employee remuneration and intermediary agency consulting expenses. The increase in the financial expense ratio is mainly due to an increase in amortization of convertible corporate bonds according to the actual interest rate method, and the company's overall cost control capacity has improved. In 2024, H1's overall gross margin was 30.85% (+7.03pct year on year), and the operating income of the whole conveyor equipment accounted for 92.08% of the total operating income, and its gross margin was 31.34% (+8.57pct year on year), which significantly improved profitability.

Profit forecasting

It is predicted that the company's revenue for 2024-2026 will be 1.727, 2.453, and 3.219 billion yuan, EPS will be 1.16, 1.73, and 2.40 yuan, respectively. The PE corresponding to the current stock price will be 21.6, 14.5, and 10.4 times, respectively, giving a “buy” investment rating.

Risk warning

Global mining capital expenditure plans fall short of expectations; risk of overseas business expansion falling short of expectations; risk of exchange rate changes; geopolitical risk of overseas projects; risk of changes in raw material prices; risk of falling short of expectations in promoting intelligent fund-raising projects; risk that equity incentives fall short of expectations.