Description of the event

The company disclosed its 2024 semi-annual report: The company achieved operating income of 3.366 billion yuan in the first half of 2024, a year-on-year decrease of 5.01%, realized net profit of 0.385 billion yuan, a year-on-year decrease of 3.04%, and realized net profit deducted from non-return to mother of 0.321 billion yuan, a year-on-year decrease of 8.28%. Among them, 2024Q2 achieved operating income of 1.783 billion yuan, a year-on-year decrease of 12.64%, and achieved net profit of 0.264 billion yuan. It decreased by 11.72% to achieve net profit not attributable to mother of 0.218 billion yuan, a year-on-year decrease of 20.63%.

Incident comments

The overall industry is under pressure, revenue has declined, commercial business has been greatly affected, and the home furnishing business remains steady. In the first half of 2024, the lighting industry was under pressure due to multiple factors such as the downturn in the real estate industry and weak consumer demand. The company's revenue for the first half of 2024 fell 5.01% year on year, with Q1/Q2 +5.35%/-12.64% year on year; the mainland market fell 4.27% year on year, the overseas market fell 14.95% year on year, and other businesses (regions) increased 32.50% year on year. Looking at business performance, the offline consumer business has benefited from store image upgrades and channel layout optimization, and market coverage has been further expanded to maintain steady growth; the commercial license business is greatly affected by macroeconomics and real estate, and revenue has declined significantly, but the company is actively developing core projects such as photovoltaics and smart city industrial parks, and smart street lighting solutions have been implemented in many places; e-commerce business companies continue to optimize user service systems and product structures. Under fierce competition and platform reserve price restrictions, revenue has basically remained flat and gross margin has increased steadily; overseas business companies continue to focus on key regions to promote multi-channel construction, and the project progress is showing remarkable progress. However, due to the geographical conflict and slow economic recovery, revenue declined somewhat.

The overall gross margin has improved, and the cost ratio has increased accordingly as market investment increases. The company's gross margin for the first half of 2024 was 39.29%, up 1.09pct year on year. Among them, the mainland market increased 0.45 pct year on year, and the overseas market increased 3.94 pct year on year, mainly due to the completion of inventory removal in the Indian market, and 16.48 pcts year-on-year increase in other businesses (regions). In addition, the company's sales expense ratio increased by 1.60 pct year on year, or due to the company's increased investment in terminal store upgrades and channel support costs, the management fee ratio increased by 0.76 pct year on year, the R&D cost ratio decreased by 0.52 pct year on year, and the financial cost ratio increased by 0.15 pct year on year. The combination of these factors made the company's net profit margin return to mother 11.44% in the first half of 2024, an increase of 0.24 pct year on year. In 2024Q2, the company's gross margin was 40.04%, up 0.85 pct year on year, and 1.57 pct month on month. In addition, the company's sales expense ratio, management expense ratio, R&D cost rate, and financial expense ratio increased by 1.74/0.41/0.3/0.29 pct year on year, respectively. Combined, the net profit of 2024Q2 company to mother was 14.81%, up 0.16 pct year on year.

Investment advice: The company has been deeply involved in the lighting industry for more than 20 years and has established a strong competitive advantage in terms of brands, channels, R&D technology, production and operation, talent and management. On this basis, the company continuously improves digital intelligence construction and internal management system construction, and builds and optimizes information systems, management systems and processes with international standards to further improve the level and efficiency of management. We expect the company's net profit to be 954, 11.1, and 1,218 million yuan respectively for 2024-2026, corresponding PE of 11.3, 9.7, and 8.8 times, respectively, to maintain a “buy” rating.

Risk warning

1. The risk of income uncertainty caused by fluctuations in the real estate industry;

2. The risk of price fluctuations of major raw materials;

3. Risk of falling share and profit efficiency due to increased market competition.