Description of the event

By 2024H0.1 billion, Huatong achieved revenue of 0.154 billion yuan, a year-on-year increase of 0.21%; net profit to mother of -0.141 billion yuan, compared to -0.077 billion yuan in the same period last year; net profit without return to mother -0.158 billion yuan, compared to -0.124 billion yuan in the same period last year, and losses increased.

Among them, 2024Q2 achieved revenue of 0.141 billion yuan, an increase of 33.81% year on year; net profit attributable to mother -0.05 billion yuan, compared to -0.038 billion yuan in the same period last year; net profit after deducting non-attributable net profit of -0.061 billion yuan, compared to -0.081 billion yuan in the same period last year.

Incident comments

The product is still in a period of rapid iteration, and the decline in unit prices is dragging down the increase in revenue. 2024H0.1 billion Huatong's revenue increased 0.21% year on year. The reasons for the slightly lower growth rate are: 1) The fuel cell vehicle industry is still immature. It relies more on government financial incentives, and local government spending pressure is high, so the industry promotion progress has been affected to a certain extent. According to China Insurance Insurance's data, the total sales power of fuel cell systems in the 2024H1 industry was 266.4 MW, up 30.5% year on year; the total sales power of the company's fuel cell systems was 58.5 MW, up 113% year on year, and the market share reached 21.9%. 2) Fuel cell systems are in a period of rapid iteration, and product prices have dropped a lot; in addition, major automakers and system manufacturers have continuously increased their resource investment, and market competition has intensified. As the price of fuel cell systems falls, their application scenarios such as buses and commercial vehicles may usher in a turning point.

Gross profit margin declined. 2024H1's comprehensive gross margin was 17.71%, a year-on-year decrease of 18.93 pct; among them, the gross margin of fuel cell systems was 22.9%, down 11.6pct from 2023. On the one hand, the fuel cell industry is fiercely competitive, and on the other hand, the fuel cell industry has not yet reached the large-scale commercialization stage. The production capacity of the company's fuel cell system phase II project to be put into operation in 202H2 fell short of expectations, and the unit depreciation cost was rigid, resulting in a decline in the sales price of the company's products greater than the cost reduction. With the scale effect unleashed, the company's gross margin had room to be repaired.

Exchange gains drag down profits. 2024H1's financial expense ratio was 0.03%, up 13.93 pct year on year; net income from fair value changes was 0.007 billion yuan, a year-on-year decrease of 0.042 billion yuan, mainly due to a decrease in confirmed exchange earnings.

The company's cash flow is expected to continue to improve as sales repayments are accelerated and national supplements are issued. The 2024H1 company's revenue ratio was 85.2%, up 20.2pct year on year, mainly due to a year-on-year increase in sales repayments and government subsidies received. On May 21, 2024, the Ministry of Finance announced a total incentive fund of 1.14 billion yuan for the first year of fuel cell vehicle demonstration applications, including 0.304 billion yuan for Shanghai, 0.298 billion yuan for Beijing, 0.238 billion yuan for Henan Province, 0.172 billion yuan for Hebei Province, and 76.87 million yuan for Guangdong Province. It is expected that the company's cash flow will continue to improve after the national supplement funds are distributed to vehicle customers in 2024.

We expect fuel cell vehicle promotion to continue to accelerate. In 2024, the five major model cities will enter the third year of the demonstration promotion period. It is expected that markets such as Guangdong, where promotion is relatively slow, will speed up expansion, and promotion volume in Beijing is expected to maintain a high level of growth. Looking ahead, we believe that the company will still benefit from the high growth in the fuel cell industry: 1) 2024H1 fuel cell vehicles account for 84.4% of truck insurance (79.1% in 2023), which means that the economy is gradually being accepted by the market; 2) the installed power of bicycles continues to increase, and product performance continues to improve. In addition, the company set up a subsidiary in Guangdong to explore the Guangdong model urban agglomeration market.

The company's revenue for 2024-2025 is expected to be 0.881 billion yuan and 1.22 billion yuan, respectively, maintaining a “buy” rating.

Risk warning

1. Risk of product iteration due to technological upgrades; 2. Risk of inventory impairment and bad accounts receivable.