Description of the event

The first half of the year achieved revenue of 0.555 billion, an increase of 21.70% year on year; realized net profit of 0.091 billion yuan, an increase of 69.97% year on year. Equivalent to Q2, revenue was 0.285 billion, up 22.91% year on year; attributable net profit was 0.039 billion yuan, up 68.58% year over year.

Incident comments

2024H1 Revenue increased, profit improved. In the first half of the year, sales in the automobile industry were steady, moderate and positive. Automobile sales increased by 6.1% year on year, and the company's revenue increased 21.70% year on year. Thanks to the excellent performance of the company's core customers such as Geely and Chery, new energy vehicle projects continued to be put into production, and frameless sealing strip models such as Krypton 007 and Zhijie S7 entered mass production, driving the company to continue to release frameless products. In terms of gross margin, it benefited from a sharp increase in revenue, continued expansion of new projects, and continuous strengthening of management optimization cost control. The gross margin increased 3.4 pcts to 31.1% year over year; the fee rate decreased slightly by 1.8 pcts to 12.4% during the period, of which the management rate decreased by 1.1 pcts; other income increased 1.85 million due to additional input tax offsets; and ultimately achieved an attributable net interest rate of 16.5%, an increase of 4.7 pcts over the previous year.

The positive trend continued in the second quarter. Q2 The company continued its Q1 growth trend, and the company's revenue also increased by 22.9%. Gross margin continued to improve markedly year over year, with gross margin rising 3.2 pcts to 28.9% in Q2; the cost ratio decreased slightly by 1.4 pcts during the period, with management and finance rates falling 0.7 or 0.4 pcts, or mainly benefiting from the company's refined management; asset impairment losses decreased by 1.34 million year over year, mainly due to high inventory price drop losses during the same period; ultimately, net attributable interest rate of 13.8%, up 3.7 pcts year over year.

The cost advantage is outstanding, and the profit margin is leading in the industry. In the case of high raw materials, the overall profit of the industry was under pressure, and some companies fell into losses, but the company still achieved a good level of profit, mainly due to cost advantages: 1) Self-made molds. The homemade rate of the company's tooling molds has reached more than 90%, saving equipment costs compared with outsourced processing methods; 2) Strict yield assessment.

Relying on a strict assessment system and incentive mechanism, the company's yield rate is over 95%; 3) Labor advantage. The labor cost in Xianju County, where the company is located, is low, and the manpower advantage is obvious as a labor-intensive industry; 4) Formulation accumulation. The company's homemade ratio of raw materials is more than 95%. The homemade formulation experience makes the rubber content of single-meter seals relatively low, reducing costs.

Customers continue to break through and fully benefit from borderless volume. In 2018, the company began customer restructuring and increased the development of high-quality customers. Currently, the top 9 passenger car manufacturers in the country are all company customers. Among them, independent brands such as Geely, Changan, and Chery account for a relatively high proportion. In the past two years, the company has also achieved breakthroughs in joint venture brands such as Volkswagen, and has gradually entered a sales period. Furthermore, the company is currently the only domestic enterprise that has achieved batch support for frameless seals. It is expected to fully benefit from the expansion of frameless models and achieve an increase in market share and profit margins. The company increased its efforts to acquire new projects in the first half of this year. The total number of projects received exceeded 120% of the projects it undertook last year, the vast majority of which are NEV projects.

Investment advice: Looking ahead, the company's customer structure continues to be optimized, and new customer breakthroughs are expected to bring new growth; if raw materials gradually decline at a high level, it is expected to contribute additional performance flexibility. Net profit attributable to 2024 and 2025 is estimated to be about 0.21 or 0.27 billion, corresponding to PE 15 or 12 times.

Risk warning

1. Raw materials continue to rise sharply;

2. Automobile sales continue to be under pressure.