1H24 results fall short of market expectations

The company announced 1H24 results: 1H24 revenue/net profit/net profit deducted from non-net profit of 7.978/0.393/0.348 billion yuan, +2.1%/-31.9% year-on-year. 2Q24 revenue/net profit attributable to mothers/net profit deducted from non-net profit of 4.237/0.17/0.149 billion yuan, +6.5%/-48.6% YoY, +13.2%/-23.5%/-24.6% YoY. Affected by the decline in domestic macroeconomic climate, the company's 1H24 performance fell short of market expectations.

Development trends

The industrial motor business is under pressure in the short term, and we are optimistic that the implementation of large-scale equipment refurbishment policy subsidies will drive recovery. Weak macroeconomic conditions in the 1H24 domestic and European markets, the decline in manufacturing investment, compounded by price cuts, we estimate that the growth of the company's 1H24 industrial motor business is under pressure. Looking ahead, the ultra-long-term treasury bond support policy was announced in August, and it is proposed to allocate nearly 150 billion yuan to support equipment refurbishment, while the central financial administration will allocate 27.5 billion yuan to support increasing the interest rate discount ratio for equipment renewal loans. By optimizing the sharing ratio between the central government and local authorities and easing the pressure on local financial expenditure, the policy enhances the certainty of subsequent capital implementation, and focuses on high-energy fields such as steel, petroleum, chemicals, etc., for the company's main downstream; we are optimistic that the 2H24 funding will drive the upgrading of downstream equipment speed up and drive the recovery of the company's industrial motor business.

Micromotor continues to pick up, and trade-in home appliances is expected to boost downstream demand. Benefiting from the downstream recovery of home appliances, the industrial chain has been replenished. The company's micro motor business has continued to pick up since 24. We estimate that 1H24 revenue increased 15-20% year-on-year, and led to an improvement in profits. Home appliance trade-in subsidies were introduced in July, and major appliances may be the main beneficiary direction. We believe that the company's micro motor is expected to benefit from the boost in downstream demand.

The NEV motor business is under pressure, and the electric aviation business is accelerating commercialization. In terms of NEV motor business, due to falling demand in Europe, domestic market competition, and price increases for the main material copper, the subsidiary Wolong ZF 1H24's revenue fell 36.1% to 0.216 billion yuan, and net profit loss was 0.025 billion yuan, which broadened. Looking ahead to 2H24, we believe that European car companies are expected to start replenishing stocks and the domestic car market entering a peak season, which is expected to drive the improvement of the company's NEV motor business. In terms of electric aviation business, the company 1H24 has accelerated the commercialization of technology. The first domestic 100 kilowatt variable configuration distributed electric power system jointly developed with COMAC has been used in COMAC's 19-seat high-speed electric duct aircraft and the Geely Warfly AE200.

Expense control has been improved, and long-term equity impairment has dragged down apparent profits. The company's expense ratio during the 1H24 period was +2ppt. Among them, investment in sales and R&D expenses increased, downstream demand was weak, and the company increased its development of new markets and products; the company's 1H24 asset impairment losses increased sharply year over year, mainly due to long-term equity impairment of 0.06 billion yuan calculated in 2Q24.

Profit forecasting and valuation

Due to weak macroeconomic conditions, the growth of industrial motors fell short of expectations, and we lowered the company's 2024-25 profit forecast by 13.5%/16.4% to 1.007/1.17 billion yuan, and the target price was reduced by 13.9% to 15.5 yuan; the current stock price corresponds to 13.7x/11.8x 2024/25 P/E, and the target price corresponds to 20.1x/17.4xP/E, with 47.1% upside.

risks

Sales of new energy vehicles fell short of expectations, macroeconomic recovery fell short of expectations, and commodity prices fluctuated sharply.