Incident: On August 29, 2024, Tongling Co., Ltd. released its 2024 semi-annual report. 2024H1's revenue was 0.79 billion yuan, +10.92% YoY, and net profit to mother was 0.063 billion yuan, or -24.82% YoY.

2024Q2's revenue was 0.381 billion yuan, -0.49% YoY, -6.72% month-on-month, and net profit to mother 0.028 billion yuan, or -41.41% YoY and -22.73%.

The price pressure in the industrial chain is high, and the junction box business is under pressure in the short term. 2024H1 secondary tube junction box business revenue 0.384 billion yuan, -19.38% YoY, gross profit margin 15.04%, down 5.58pct from 2023H1, 0.185 billion yuan, +12.86% YoY, gross profit margin 13.69%, down 9.78pct from 2023H1, PV interconnect harness revenue 0.068 billion yuan, 38.86% YoY, gross profit margin 34.39% compared to 2023H1 It increased by 6.19 pct, auto parts revenue was 0.103 billion yuan, and gross profit margin was 34.88%.

Fluctuations in raw material prices are compounded by the transmission of price pressure in the photovoltaic industry chain to auxiliary materials companies, putting pressure on the company's short-term performance. Since 2024, the procurement prices of the company's main raw materials such as cables, tinned wires, diodes, and plastic particles have fluctuated. At the same time, the photovoltaic industry as a whole is in a state of loss, and auxiliary materials companies are also under great price pressure. However, as a leading junction box company, the company has established good cooperative relationships with leading downstream enterprises in the industry. The company's repayment is guaranteed, and the company's profitability is expected to continue to improve.

By actively deploying the auto parts sector, the company's profitability will continue to benefit. The company began to actively deploy the auto parts sector in 2023, and the auto parts project began to gradually contribute to the company's profit in 2024. 2024H1, the company's auto parts revenue was 0.102 billion yuan, accounting for 13.04% of the company's revenue, and the gross margin reached 34.88%. Currently, the company's auto parts are equipped with a full range of BYD products, mainly fender assemblies, buckles, and various sound insulation and insulation products for various models.

As the auto zero business continues to expand, it will continue to contribute to the company's profits.

Investment advice: We expect the company's 2024-2026 revenue to be 1.816/2.172/2.646 billion yuan, net profit to mother of 0.14/0.213/0.254 billion yuan, EPS 1.17/1.78/2.12 yuan respectively, and PE 21.08/13.88/11.64 times, giving it a “recommended” rating.

Risk warning: the risk of policy changes, the risk that market demand falls short of expectations, competition increases risk.