2Q24 results are in line with market expectations

The company announced its 2024 interim results: 1H24 achieved revenue of 6.164 billion yuan, +33% year over year; net profit to mother was 0.411 billion yuan, +9% year over year; net profit after deducting non-return to mother was 0.411 billion yuan, +9% year over year. Corresponding to 2Q24, revenue was 3.117 billion yuan, +27% YoY, +2% month-on-month; net profit to mother was 0.206 billion yuan, -8% YoY, +1% month-on-month; net profit without return to mother was 0.209 billion yuan, -8% YoY and +3% month-on-month. In line with market expectations.

Development trends

The number of key customers continued to grow, and the mid-term results increased dramatically. Benefiting from continued growth in sales volume from key customers such as Geely, Chery, Tesla, BYD and New Force, 1H24 achieved high performance growth. Instrument panel assembly/roof assembly/door panel/interior/bumper assembly/exterior products achieved revenue of 40.8/0.7/9.3/0.21/0.14/0.1 billion yuan respectively, up 35.5%/54.7%/13.4%/387.1%/147.8%, respectively. The company strengthened the expansion of traditional and new energy businesses. 1H24 added some key products such as instrument panels and auxiliary instrument panels for new cars, and received support for new energy model projects from brands such as Ideal, Geely, GAC New Energy, BYD, and NIO. We believe that as new customers and new projects continue to expand, the company's revenue is expected to grow further.

The results of lean management are gradually showing, and the scale effect is expected to expand. On the profit side, the company's 1H24 achieved net profit of 0.411 billion yuan, +9% year-on-year, and corresponding gross margin of 20%, and +0.1ppt year-on-year. We believe that the increase in the company's profit is mainly due to the volume of the bumper assembly business with a relatively high gross margin, and the increase in production capacity and internal management efficiency under the company's platform-based strategy. On the cost side, the company's lean management continued to advance. The 2Q24 sales/management/R&D/finance expense rates were 1.6%/4.4%/3.7%/1.6%, respectively, -0.3pp/ -0.02pp/ -0.3pp/ +3.8ppt. Looking ahead, we believe that as new production capacity is further realized, the company is expected to unleash large-scale effects to increase profits.

The Mexican plant has successfully climbed the slope, waiting for overseas production capacity to continue to increase. The company is steadily advancing its internationalization strategy and actively building overseas production capacity. 1H24 Mexico's New Springs achieved revenue of 0.325 billion yuan, and the climbing speed was relatively fast.

Since March '24, the company has increased its capital in Slavac Xinquan by 45 million euros and set up subsidiaries in Delaware, California, and Texas, respectively. Currently, the company has invested in the construction of factories in Malaysia, Mexico and the United States, and the global layout continues to improve. We believe that the company's overseas layout and overseas production area are improving, and that Mexico's production capacity is climbing in line with expectations. We will wait for factories such as Slovakia to achieve production capacity and drive overseas performance growth.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains largely unchanged. The current stock price corresponds to 2024/2025 16.3/12.7 times P/E. Maintain outperforming industry ratings. Considering the downward shift in the sector's valuation center, we lowered our target price by 18.6% to 49.14 yuan, corresponding to 21.0/16.4 times P/E in 2024/2025, with 29.4% upside compared to the current stock price.

risks

Global production capacity construction fell short of expectations, industry competition intensified, and core customer sales fell short of expectations.