24Q2 Company revenue +24.27% YoY, net profit to mother -19.35%, net profit after deducting non-net profit -7.73%. Sales drive revenue growth, and net profit after deducting non-net profit improved quarterly. Q2 gross margin increased significantly compared to Q1. It is expected that in the second half of the year, with product price recovery, capacity utilization, and product structure optimization, profitability is expected to recover quarterly.

The estimated net profit for 24-26 is 0.56 billion yuan, 0.753 billion yuan, and 0.886 billion yuan, respectively. The current market value corresponds to 24PE12X and 25PE9X, maintaining a highly recommended rating.

Sales drive revenue growth, and net profit after deducting non-net profit improved quarterly. 1) 24H1: The company's revenue was 3.989 billion yuan (+23.89% year on year, same below), of which sales volume increased 23.84% year on year, and the estimated price remained the same year on year.

Net profit attributable to mother was $0.233 billion (-14.78%), after deducting non-net profit of 0.107 billion yuan (-46.70%). Non-recurring profit and loss of 0.126 billion yuan mainly included 0.12 billion yuan of gains and losses on disposal of non-current assets and 0.027 billion yuan of financial asset investment income. 2) 24Q2: The company's revenue was 2.155 billion yuan (+24.27%). Net profit attributable to mother was 0.152 billion yuan (-19.35%), after deducting non-net profit of 0.115 billion yuan (-7.73% YoY, positive month-on-month).

Overseas revenue is growing rapidly, and Vietnam's profitability has improved. Currently, 77% of the company's production capacity is located in Vietnam. 24H1 domestic revenue was 0.995 billion yuan (+14.42%), and overseas revenue was 2.994 billion yuan (+27.40%). From a subsidiary perspective, the Vietnamese subsidiary 24H1 had revenue of 3.089 billion yuan (+27.37%), net profit of 0.218 billion yuan (+33.73%), and a net profit margin of 7.06% (+0.34pct).

Q2 gross margin increased significantly compared to Q1, and foreign exchange led to an increase in financial expense ratios.

1) 24H1: gross margin -4.92pct to 10.00%; year-on-year expense ratio -0.67pct to 7.52%, of which management expense ratio -1.78pct and financial expense ratio +1.09pct (mainly due to a year-on-year decrease in net exchange earnings); net margin -2.65pct to 5.84% yoy.

2) 24Q2: gross margin -2.80pct to 13.50% year over year, up 7.61pct month-on-month; period expense ratio +0.54 pct to 6.87% year over year, with financial expenses ratio +2.02pct to 0.98%; net interest rate -3.83 pct to 7.08%.

Cash flow has improved dramatically, and inventory turnover efficiency has improved markedly. 1) Cash flow: 24H1 net cash flow from operating activities of $0.886 billion (+470.89%). 2) Inventory: The number of inventory turnover days as of the end of June '24 was 224 days, compared to -131 days. 3) Accounts receivable: As of the end of June '24, the number of accounts receivable turnover days was 28 days, +1 day compared to the same period.

Profit forecast and investment suggestions: In the first half of the year, the company grasped the opportunity of downstream consumer demand recovery, adjusted the product structure in a timely manner, and achieved sales growth. Profitability is expected to continue to increase in the second half of the year as product prices recover further, capacity utilization and product structure are further optimized. Considering the impact of raw material prices and exchange rate fluctuations in the first half of the year, we expect revenue to be 7.599 billion yuan, 8.376 billion yuan, and 9.152 billion yuan respectively for 24-26, with year-on-year growth rates of 10%, 10%, and 9%, respectively. Net profit to mother was 0.56 billion yuan, 0.753 billion yuan, and 0.886 billion yuan, respectively, with year-on-year growth rates of 11%, 35%, and 18%, respectively. The current market value corresponds to 24PE12X and 25PE9X, maintaining a highly recommended rating.

Risk warning: risk of large fluctuations in raw material prices; risk of downstream demand falling short of expectations; risk of exchange rate fluctuations, etc.