Incident: The company's 2024H1 revenue was 11.484 billion yuan, an increase of 24.57%; net profit to mother was 0.184 billion yuan, a decrease of 47.60%; net profit not attributable to mother was 0.175 billion yuan after deduction, a decrease of 42.52%. The company's 2024Q2 revenue was 6.363 billion yuan, an increase of 35.09%; net profit to mother was 0.153 billion yuan, a decrease of 21.76%; net profit without deduction was 0.148 billion yuan to mother, a decrease of 8.66%.

The battery growth rate has slowed marginally, and the decline in processing costs has affected the company's performance. On the demand side, in January-June, China's cumulative output of power and other batteries was 430.0 GWh, a cumulative year-on-year increase of 36.9%; cumulative sales volume was 402.6 GWh, with a cumulative year-on-year increase of 40.3%. On the price side, battery foil production capacity was increased and production was increased. With demand growth limited, industry processing costs declined under pressure, and the company's 2024H1 performance was under pressure, down 47.60% year on year.

The same reduction in processing fees affects profit margins, and efficient management reduces rates. 2024H1's gross margin was 9.88%, down 3.41 pcts year on year; net profit margin was 1.60%, down 2.20 pct year on year. The decline in profit margin was mainly due to a slowdown in the marginal growth rate of downstream demand, combined with industry capacity investment and a year-on-year decline in processing costs. Looking specifically at the cost side, the 2024H1 company's cost rate during the period was 6.60%, a year-on-year decrease of 1.09pct. Among them, the sales expense ratio was 0.78%, a year-on-year decrease of 0.33pct, the management expense ratio (including R&D) was 5.63%, a year-on-year decrease of 0.69pct, and the financial expense ratio was 0.19%, a year-on-year decrease of 0.06pct.

Overseas production capacity lays the foundation for future growth, smooth profits and enhances competitiveness. The company has now deployed production capacity in overseas regions such as Thailand and Europe. At the same time, considering that overseas battery foil production capacity is low, the overall competitive pattern is superior, and the processing cost is far higher than at home. At the same time, downstream battery companies such as Ningde Times are also speeding up their deployment in Europe. With the implementation of production capacity plans of 14 GWh in Germany and 100 GWh in Hungary, the company is also expected to take the lead in benefiting as its domestic partner. In addition to this, the company is also closely cooperating with overseas leaders such as LG Group to further enjoy high growth in overseas markets.

Investment advice: We expect the company to achieve net profit of 0.471/0.507/0.57 billion yuan in 2024-2026, a year-on-year change of -11.8%/7.6%/12.4%. The latest closing price corresponding PE is 17x /15x /14x, maintaining the “gain” rating.

Risk warning: Economic recovery falls short of expectations; production capacity investment falls short of expectations; and the new energy industry has declined beyond expectations.