The company's 2024H1 performance fell short of expectations

Green Harmonics announced 2024H1 results: revenue for the first half of the year was 0.172 billion yuan, which was basically the same as the previous year; net profit to mother was 0.037 billion yuan (down 27.7% year on year). In 2Q24, the company's revenue growth rate turned positive to 9.0%, breaking through the 7 consecutive quarters of sluggish revenue growth since 2022/Q3. Due to market competition, the net profit of the 2Q24 company fell 36.5% year on year to 0.017 billion yuan, and the net profit margin fell sharply again from month to month, lower than our expectations.

2Q24/1H24 gross margin decreased 2.1/2.0ppt year over year. By business, 2024H1's harmonic speed reducers and metal components/mechatronics accounted for 84%/14% of revenue, and the mechatronics revenue growth rate exceeded 60%.

The metal precision parts business continues to shrink. The subsidiary Hengjia Metal's revenue for the first half of the year fell 15% year on year to more than 30 million yuan, with a net profit margin of 4%.

Investment in research and development of harmonic speed reducers has increased. The company's research projects include “intelligent harmonic reducer”, “ultra-small damping harmonic reducer”, etc. 2024H1 increased R&D expenses by 2ppt to 14.5% for use in the field of intelligent robots and machine tools.

The gross margin of mechatronics increased. Mechatronics achieved sales revenue of 24.54 million yuan in the first half of the year, with a gross profit margin of 42%, a slight increase over 2023 (41% in the year). The company uses industrial/mobile robot joints and CNC machine tool turntables as development fields.

2Q24/1H24, the company's net profit margin decreased by 13.1/8.3ppt year on year. The company's sales/management/finance expense ratio for the first half of the year was +1.4/1/+7.6ppt year-on-year. The increase in financial expense ratio was mainly due to a decrease in interest income from monetary funds. Under the combined impact, 2Q24 Green's harmonic net profit margin has fallen to less than 20%.

Development trends

Humanoid robot mass production signal acceleration. In 2024, domestic enterprises represented by innovation centers and new forces actively invested in humanoid robot research and small-scale mass production. In July 2024, the company announced that the application for fixed increase was approved for registration. We believe it is expected to seize mass production opportunities for humanoid robots after 2025.

Profit forecasting and valuation

Considering the expansion of various expense ratios, we reduced 2024/2025 net profit by 6.7%/29.4% to 1.0 (YoY +20.1%) /0.12 billion yuan (YoY +20.0%). Considering that the valuation of the humanoid robot sector has returned to a more rational state, we lowered the company's target price by 45% to 80 yuan (the current target price implies the industry's optimistic mass production expectations for the next 3-5 years), which has 23.4% room to rise, maintaining the industry's outperforming industry rating.

risks

There is a risk that net profit margins will continue to decline, and that humanoid robots will fall short of expectations.