1H24 results are in line with market expectations

Changying Precision announced 1H24 results: operating income of 7.692 billion yuan, a year-on-year increase of 30%; net profit to mother of 0.433 billion yuan, a year-on-year change from loss to profit, in line with market expectations. Corresponding to the 2Q24 single quarter, Changying achieved revenue of 3.752 billion yuan, a year-on-year increase of 29%, and net profit to mother of 0.124 billion yuan, changing from loss to profit year-on-year. We believe that the profit improvement of 1H24 Changying Precision is mainly due to 1) the company's mobile phone business selling well for new S24 series products from Korean customers, and Changying's introduction of aluminum alloy and titanium alloy frames; 2) the improvement in PC product sales for North American customers has led to an improvement in the company's related business revenue and profitability.

By business, 1H24 Changying Precision: 1) Consumer electronics precision structural parts revenue was 3.705 billion yuan, up 40.28% year on year, and gross margin increased 0.51ppt to 18.51%. We think the main reason was the increase in revenue contributed by Korean customers to mobile phone frame imports and a slight improvement in PC shipments from North American customers; 2) revenue from electronic connectors and small precision components was 1.52 billion yuan, down 3.21% year on year, and gross margin decreased 0.66ppt to 17.58%; 3) New energy revenue 2.144 In billion yuan, the year-on-year increase was 54.89%, and gross margin decreased by 0.65ppt to 16.86%. We believe that the rapid growth in the new energy business is mainly due to the continuous increase in domestic NEV customer share and driving revenue growth, but the price pressure continues, causing gross margin to be pressured.

Development trends

The development trend of AI terminals is clear, and Changying's comprehensive customer coverage is expected to benefit. Recently, with the release of AI operating systems by Apple and Android, we believe that the AI terminal era has begun, which is expected to welcome hardware upgrades and push users to switch devices. Changying has now covered mobile mid-frame products for core Android customers around the world, and is a core supplier of metal exterior parts for Apple PCs. It also supplies MR mid-frame products, and has a comprehensive layout of AI terminals such as mobile phones, PCs, and MR. We are optimistic that Changying will continue to benefit from the growing trend of AI terminal shipments.

New energy sources and robots continue to grow, and are expected to contribute to revenue growth in the future. 1) New energy: Changying 1H24 has achieved rapid growth. We believe that it is mainly due to the increase in the share of major power battery customers and the steady growth of its subsidiary Corrent. We are optimistic that Changying will continue to focus on major customer cooperation in the future, promote digital production and automation transformation processes, optimize related business costs, and improve profits. 2) Robotics: According to the company's semi-annual report, Changying established a robotics subsidiary in June this year to develop a robotics circuit. The company has now introduced the supply chain of leading global robot brands. We are optimistic that the company will continue to benefit from the expansion of the robotics business in the future and drive continued growth in the company's revenue and profit.

Profit forecasting and valuation

Since the recovery of MR shipments from major customers and traditional PC shipments fell short of our expectations, the improvement trend in NEV profits fell short of our expectations. We lowered 2024 net profit by 21% to 0.746 billion yuan, and introduced net profit to mother of 0.87 billion yuan in 2025. The current stock price corresponds to 2024/25e 21.1/18.1x P/E.

We maintain an outperforming industry rating, and considering that the market already has full expectations for Changying's performance, we maintain a target price of 15.0 yuan, corresponding to 2024/25e 27.2/23.3x P/E, corresponding to the current 29% increase.

risks

AI terminal shipments and product introduction fell short of expectations; new energy and robotics business development fell short of expectations.