2024Q2 has a steady performance, actively developing new energy and international business, maintaining a “buy” rating of 2024H1, achieving revenue of 8.386 billion yuan (+10.45% year over year, same below), net profit to mother of 2.239 billion yuan (+22.88%), and net profit of 1.903 billion yuan (+14.27%) after deducting non-attributable net profit of 1.903 billion yuan (+14.27%). Looking at a single quarter, 2024Q2 revenue was 4.583 billion yuan (+7.64%), net profit attributable to mother was 1.309 billion yuan (+20.58%), after deducting non-return net profit of 1.085 billion yuan (+6.4%). Against the backdrop of poor market demand and poor real estate environment, the company continues to grow steadily through channel optimization and internal lean cost reduction. We maintain profit forecasts. We expect net profit to be 4.466/5.135/5.832 billion yuan for 2024-2026, corresponding EPS of 3.46/3.97/4.51 yuan. The PE corresponding to the current stock price is 19.6/17.1/15.0 times, respectively. Domestic channel optimization centered on flagship stores of all categories is expected to drive steady revenue growth. Overseas markets are actively exploring the Southeast Asian, European and American markets Or provide increments to maintain a “buy” rating.

The 2024H1 electric connection/wall business grew steadily, and the new energy business maintained a high growth rate of 2024H1 electric connection/smart electrical lighting/new energy business achieved revenue of 3.87/4.211/0.289 billion yuan respectively, +5.23%/+11.69%/+120.22% year-on-year respectively. (1) The electrical connection business continues to focus on high-end products such as rail sockets, and price increases drive steady operation. In addition, the introduction of a power tool category further amplifies the synergy effect of hardware channels.

In the international market, the Southeast Asia distribution system layout has been initially completed. (2) The smart electrical lighting business has achieved steady growth against the backdrop of a weak real estate economy. On the one hand, the construction of all types of flagship stores has led to improved store efficiency and active expansion of B-side channels; on the other hand, the construction of no main lighting channel may drive the growth of the lighting business. (3) New energy business. At the end of the 2024H1 period, it has developed more than 0.022 million terminal outlets (0.017 million at the end of the 2023 period) and more than 2,200 operator customers (1500 at the end of 2023). At the same time, the energy storage business will be gradually released.

Internal lean cost reduction supported stable gross margin in 2024Q2. The sales expense ratio increased 2024Q1/2024Q2 gross profit margin by 42.16%/43.59%, +5.01/+0.44pct year-on-year, respectively. Lean cost reduction was better at hedging the impact of rising raw material costs. On the cost side, the cost rates for the 2024Q1/2024Q2 period were 15.45%/15.14%, and +1.87/+1.87pct, respectively. Among them, 2024Q2 sales/management/R&D/finance expenses rates were 8.49%/4.19%/-0.73%, respectively, +1.09/+0.09/+0.65/+0.03pct, respectively. Under the combined influence, 2024Q1/2024Q2 net interest rates were 24.44%/28.57%, respectively, +2.36/+3.07pct year on year; net interest rates after deducted non-return were 21.51%/23.68%, respectively, and +2.15/-0.28pct, respectively. Non-recurring profit and loss mainly came from investment income (2024Q2 investment income is large).

Risk warning: Channel reform results fall short of expectations; real estate sales continue to weaken; raw material costs rise, etc.