Introduction to this report:

The growth of general lighting is under pressure, and car lights continue to be high-end; Q2 gross margin has been optimized, and there is plenty of net cash on hand.

Increase your holdings.

Key points of investment:

The growth of general lighting is under pressure, and car lights continue to be advanced. Considering the continuous improvement in the gross margin of the company's various businesses, we maintain our profit forecast. We expect EPS to be 0.22/0.25/0.29 yuan for 24-26, +16%/+15% compared to the same period last year. The company's current market value is 6.5 billion yuan, and the net cash in hand at the end of the 24H1 period is 2.9 billion yuan, accounting for a high proportion of the market value. Referring to the same industry, the company was given 25xPE in 24 years. Due to the downward shift in the valuation center of comparable companies, the target price was lowered to 5.5 yuan to maintain the “gain” rating.

Q2 Performance was slightly lower than expected. The company 24H1 achieved operating income of 4.785 billion yuan, +4.78% YoY, net profit of 0.192 billion yuan, YoY +13.79%, net profit of non-attributable net profit 0.179 billion yuan, YoY -1.14%; of these, 2024Q2 achieved operating income of 2.267 billion yuan, -4.43% YoY, net profit attributable to mother 0.109 billion yuan, +5.65% YoY, net profit not attributable to mother 0.102 billion yuan, YoY- 15.51%

The growth of general lighting is under pressure, and the automotive lighting business is performing well. 1) General lighting products 1.719 billion yuan, YoY -4.11%, gross profit margin +2.96% pct; 2) LED packaging and component products 1.323 billion yuan, +5.58% YoY, gross profit margin 16.90%, YoY -2.05pct; 3) Car lighting products 1.045 billion yuan, YoY +29.64%, gross profit margin 18.39%, YoY +1.31pct; 4) Trade and other products 0.697 billion yuan YoY -2.35%, gross profit margin 8.05%, +2.43pct year over year;

Q2 The gross margin has been optimized, and there is plenty of net cash on hand. 2024Q2 gross margin was 20.38%, +1.33pct yoy, net margin was 6.1%, +0.46pct yoy. The significant year-on-year increase in the gross margin of the company's general lighting business is expected to be mainly affected by cost reduction and efficiency and falling raw material prices; the increase in the gross margin of the automotive lighting business is mainly driven by improvements in the car lamp product structure. The total non-recurring profit and loss of 24H1 company was 13.39 million yuan, of which government subsidies were 28.95 million yuan, and the negative impact on minority shareholders' equity was 17.2 million yuan. The company's net cash on hand at the end of the 24H1 period was 2.9 billion yuan, an increase of 0.984 billion yuan over the same period last year.

Risk warning: Fluctuations in raw material prices, automotive lamp customer expansion, and product structure upgrades fall short of expectations.