1H24 results are in line with previous performance forecasts and in line with our expectations

The company announced 1H24 results: revenue -4% YoY to 3.21 billion yuan, net profit to mother -62% YoY to 4.89 million yuan; of these, 2Q24 revenue -8% YoY to 1.84 billion yuan, and net profit to mother -26% YoY to 50.76 million yuan, in line with previous performance forecasts and basically in line with our expectations.

1) Demand pressure is increasing, and the growth rate of the real estate chain is heavier: 1H24's door and window hardware revenue was -16% to 1.387 billion yuan, door control/door and window accessories -6%/-19% to 0.168/0.239 billion yuan, while public construction products such as curtain wall structure/stainless steel fence were +18%/+17% to 0.18/0.098 billion yuan. The new category (home furnishing+other construction hardware) performed well, reflecting the gradual results of the new scenario. Revenue was +14%/+17% to 0.59/0.518 billion yuan, respectively, and the revenue share was +6ppt to 35% year-on-year. 2) Raw materials are stable, and gross margin is basically flat: 1H24's comprehensive gross margin was +0.1ppt to 31.3% year over year (of which 1Q/2Q was 30.4%/31.9%, 2Q was basically flat), of which the gross margin of door and window hardware was +0.6ppt to 39.9% year over year, gross margin of household goods -1.2ppt to 29.2% year over year, gross margin of other construction hardware +1.2ppt to 16.6% year on year, and gross margin of door and window accessories +2ppt to 19% year on year; 3) The cost ratio was dragged down by revenue decline: 1H24 company personnel continued to decline. The corresponding sales/management/R&D expenses were -7%/+3%/+5%, and the corresponding period cost ratio was +0.4ppt to 27.9%. Among them, 1H24 business/management/R&D expenses rates were -0.5/+0.4ppt to 17.1%/6.3%/4.2%, respectively (the 2Q period cost rate was +0.5ppt to 24.8% year over year, and management and R&D expenses also increased). 4) Credit impairment increased, and net interest rates were dragged down: 1H24 credit impairment was -83.22 million yuan (-51.17 million yuan in the same period last year), resulting in a net interest rate of -0.2ppt to 0.2% year-on-year.

1) Good operating quality performance: 1H24's revenue ratio was -18ppt to 90% year over year, but due to low payouts, net operating cash flow was +0.238 billion yuan to -0.19 billion yuan year over year. Among them, 1H24 accounts receivable were +0.203 billion yuan month-on-month compared to the end of the year, and accounts payable were -0.117 billion yuan month-on-month. 2) 1H24 is in a net cash position with a balance ratio of 44%.

Development trends

Demand is still weak, and steady increases will support subsequent development. Looking forward to the future, we believe that demand for completion is still weak. The company is expected to maintain revenue resilience by sinking and developing new categories and scenarios through channels. At the end of August, the company decided to expand and raise nearly 0.6 billion yuan in capital. We believe that this funding will provide strong support for subsequent companies' construction of new products and new bases, and further reduce production costs.

Profit forecasting and valuation

Considering the weak recovery in demand and limited release of human efficiency, we lowered our 24/25 net profit by 48%/43% to 0.27/0.38 billion yuan. The current stock price corresponds to 2024/25e 27/19x P/E. Considering the company as an industry leader, we maintained an industry rating, but since the valuation level has bottomed out, the target price was lowered by 29% to 27 yuan, corresponding to 2024e/25e 32/23x P/E, implying 22% upward space.

risks

The recovery in demand for completion fell short of expectations, the release of manpower efficiency fell short of expectations, and the development of new regions fell short of expectations.