1H24 results slightly lower than our expectations

The company announced 1H24 results: revenue of 1.49 billion yuan, up 12.0% year on year, net profit of 0.3 billion yuan, down 2.0% year on year, slightly lower than our expectations, mainly due to marginal weak domestic demand. Looking at a single quarter, 2Q24's revenue was 0.8 billion yuan, up 7.9% year on year, and net profit to mother was 0.16 billion yuan, down 13.5% year on year.

Revenue from CNC drills and panel saws is growing rapidly. The revenue of 1H24's edge banding machines/CNC drills (including multi-row drills) /processing centers/board saws was 0.59 billion yuan/0.34 billion yuan/0.18 billion yuan/0.17 billion yuan respectively, up 3.45% /39.4% /down 10.35% /31.3% year on year, respectively. We estimate that the rapid revenue growth of CNC drills and board saws is mainly due to increased sales of new products and increased market share.

Profit margins declined slightly. The consolidated gross margin of 1H24 was 31.7%, a year-on-year decrease of 1.3ppt.

The cost rate for the 1H24 company period was 8.9%, up 1.3 ppt year on year. Among them, the sales/management/R&D/finance expenses ratio was +0.1pp/+0.8ppt /+0.7pp/ -0.3ppt, respectively. 1H24's net interest rate to mother was 20.2%, down 2.9ppt year on year.

Cash flow is steady, and mid-term dividends are being implemented. The net cash flow from 1H24's operating activities was 43.28 billion yuan, an increase of 29.78 million yuan over the previous year. At the end of 1H24, the company's contract debt was 0.12 billion yuan, an increase of 73.12 million yuan over the end of 2023. The company implemented a 1H24 mid-term dividend of 0.13 billion yuan, with a dividend rate of 42%.

Development trends

Demand for new real estate construction is weak, and we continue to pay attention to the release of replacement demand. According to the National Bureau of Statistics, 1-7M24 has a completed housing area of 0.3 billion square meters nationwide, a year-on-year decrease of 21.8%, and the sales area of commercial housing is 0.54 billion square meters, a year-on-year decrease of 18.6%. Demand for new construction is still weak. Considering the gradual introduction of existing furniture equipment into renewal and replacement, intelligent transformation requirements, and the continuous interpretation of domestic substitution, we continue to pay attention to the release of future replacement demand; considering the company's leading technology and brand advantages, we believe that the company can benefit in the future.

Overseas revenue has grown steadily, and the company continues to expand overseas markets. 1H24's overseas revenue was 0.4 billion yuan, up 10.4% year on year, accounting for 26.9%, gross margin was 36.6%, up 2.0ppt year on year. In recent years, the company has continued to lay out overseas markets, generating large-scale revenue in Russia, Italy, Southeast Asia, etc. We believe that the current overseas market share still has a lot of room for development. It is expected that in the future, as the overseas business layout continues to improve, the contribution to overseas revenue and profit will increase.

Profit forecasting and valuation

Consider the company's leading technology and brand advantages to maintain an outperforming industry rating. Considering the marginal weakness in domestic downstream demand, the 2024/2025 profit forecast was lowered by 11%/13% to 0.61 billion yuan/0.68 billion yuan. Currently trading at 11x/10x 24e/25e P/E. Considering the decline in profit and marginal weakness in domestic demand, the target price was lowered by 25% to 19.80 yuan, corresponding to 14x/12x 24e/25e P/E, with 30% upside.

risks

Domestic demand falls short of expectations, the pace of downstream inspection falls short of expectations, and overseas market expansion falls short of expectations.