The results for the first half of the year were under pressure, focusing on subsequent performance and valuation flexibility. The 24H1 achieved operating income of 3.21 billion yuan, -4.35% year over year, and realized net profit to mother of 0.005 billion yuan, -62.02% year over year, after deducting non-return net profit of -0.017 billion yuan, and year-on-year loss. Overall, it was in line with expectations disclosed in previous performance forecasts. Looking at the single quarter, 24Q2 revenue and net profit attributable to mother were 1.844 and 0.051 billion yuan respectively, -7.86% and -26.36% year-on-year respectively. On May 17, a new round of financial measures to support real estate was launched, which is expected to improve demand for real estate. Looking at the medium to long term, we believe that the company will continue to promote category expansion and channel decline, and explore markets such as schools and hospitals to obtain growth. It is recommended to focus on the company's performance and valuation flexibility. We expect the company's net profit to be 0.43, 0.52, and 0.64 billion yuan in 24-26, maintaining a “buy” rating.

Household & other construction hardware products continued to be released, and profitability improved. By business, 24H1's core single product, door and window hardware, achieved revenue of 1.387 billion yuan, -16.04% year-on-year, and gross margin of +0.58pct to 39.94% year-on-year. Revenue from household products and other construction hardware was 0.59 billion yuan, +13.7% and +16.6% year-on-year, while gross margins were -1.2 and +1.2pct, respectively, to 29.2% and 16.7% year-on-year.

Traditional door and window accessories, point-bearing glass curtain wall components, door control hardware, and stainless steel fence components achieved revenue of 2.4, 0.18, 0.17, 0.1 billion yuan, respectively, -18.8%, -6.2%, and +20.5% year-on-year, with gross margins of 18.9%, 30.8%, 37.1%, and 23.6%, respectively, +2.2, +3.3, -0.2, and +10.2pct. It led to a 0.1 pct increase in comprehensive gross margin to 31.3% in the first half of '24.

The price transmission mechanism is smooth, and there is still room for optimization in cost control

From the perspective of raw materials, taking the zinc alloy/aluminum alloy/stainless steel prices we track, the average price in 24Q2 was +11.2%, +9.1% year over year, and +10.9%, +7.1%, and +0.2% month-on-month respectively. Against the backdrop of rising raw material prices, the company's business profitability still improved in the first half of the year, or reflected a smooth price transmission mechanism. The 24H1 company's expense ratio for the period was +0.39pct to 27.95% year on year; sales, management, R&D, and finance expense ratios were -0.53, +0.47, +0.37, and +0.09pct, respectively. 24H1 lost 0.095 billion yuan in assets and credit impairment, with a year-on-year increase of 0.033 billion yuan. The net interest rate was -0.22pct to 0.42% year over year.

Build a digital online platform and continue to gain strength through channels

In terms of channels, up to 24H1, the company has more than 1,000 domestic and foreign sales networks and a sales team of more than 6,000 people, and will continue to decline in the future according to the actual situation. At the same time, the company continues to make efforts in the online and digital direction, developing the “Jianlang Yuncai” platform for B-side customers, and creating a new pan-home online platform “Home Beauty” for C-end users. In terms of subsidiaries, Jianyijia, Haibes, and Precision Manufacturing 24H1 had revenue of 0.124, 0.078, and 0.199 billion yuan, respectively, of +8.64%, -48.96%, and +12.99%, respectively. Net profit was 0.0004, 0.031, and 0.029 billion yuan, respectively, of -96.06%, +11.83%, and +36.66% year-on-year respectively.

Risk warning: Channel expansion falls short of expectations, raw material prices have risen sharply, industry competition has intensified, and the decline in real estate chain prosperity has exceeded expectations.