Key points of investment

The increase in sales/R&D/management expenses caused short-term pressure on performance. In the first half of 2024, the company achieved operating income of 0.34 billion yuan, +18.2% year over year; realized net profit of 0.041 billion yuan, a year-on-year decrease of 42.4%; and realized net profit without deduction of 0.041 billion yuan, a year-on-year decrease of 41.8%.

24H1 achieved a gross sales margin of 41.35%, a year-on-year decrease of 4.41pct. We believe that the decline in gross margin was mainly affected by changes in revenue structure and macroeconomic factors in the industry, achieving a net sales margin of 12.20%.

24H1's revenue achieved steady growth mainly due to the company's active exploration of domestic and international markets, and the recovery of the HVAC business, while the automotive electronics, industrial and safety businesses maintained a good growth momentum; the short-term pressure on net profit to the mother was mainly due to the company's short-term increase in related expenses based on long-term development considerations: (1) In order to increase investment in R&D of new products, the company's R&D expenses increased 60.69% year on year; (2) In order to increase market development efforts, the company's marketing system talent pool grew. Domestic and foreign advertising expenses, travel expenses and exhibition expenses increased year on year. 37.37%; (3) In order to meet the needs of rapid development, the company's management expenses increased 70.37% year-on-year due to increased labor costs and increased employee expenses and park construction-related expenses; (4) Interest income and exchange income from the company's fund-raising accounts decreased, and the company's financial expenses increased 79.66% year on year.

In a single quarter of 24Q2, the company achieved operating income of 0.2 billion yuan, +34.1% year over month; realized net profit of 0.022 billion yuan, down 34.8% year on year and +8.3% month on month; achieved gross sales margin of 41.07% and net sales margin of 10.69%.

Traditional business demand is picking up, and emerging businesses are growing rapidly

In the first half of 2024, the company's traditional business demand, mainly HVAC, gradually picked up, and emerging businesses such as automotive electronics, industry and safety continued to advance steadily. By business:

HVAC: The sales revenue of the company's HVAC business, which mainly focuses on civilian air quality gas sensors, increased 26.96% year-on-year. As demand in the air purification market increases, the company continues to consolidate dust sensors and CO? The customer advantage of sensors, formaldehyde, and VOC sensors in the smart home field increases the installation rate of environmental appliances and cleaning appliances; by promoting modules and controller products with integrated air quality sensors, the unit value and industry competition threshold are further raised.

Industry and safety: The company's sales revenue from the industrial and safety business, which mainly focuses on refrigerant monitoring sensors and miniature infrared sensors, increased by 81.75% year on year. The company's industrial and safety business mainly includes refrigerant leak monitoring, safety and environmental protection, gas leak monitoring, energy storage heat loss monitoring, etc. Among them, revenue in the fields of refrigerant leak monitoring, safety and environmental protection contributes greatly. The long-life refrigerant leak monitoring sensors based on NDIR (non-spectral infrared) technology launched by the company have characteristics such as quick response and accurate measurement. They have begun mass deliveries to leading companies at home and abroad, and are also actively developing new project targets.

Automotive electronics: The sales revenue of the company's automotive electronics business, which mainly focuses on automotive comfort system sensors and high-temperature gas sensors, increased 31.09% year-on-year. As of the release of the mid-year report in 2024, the fixed amount of the company's new automotive comfort system supporting sensor projects has exceeded 0.69 billion yuan, while actively expanding into the supply chain system of new well-known automobile groups. In terms of power battery thermal loss monitoring sensors, the company's power battery thermal loss monitoring sensors have been shortlisted in the supplier pool of domestic car companies and leading battery companies, began supplying customers in batches, while continuing to promote technical solution exchanges and sample delivery tests with overseas customers.

Domestic and foreign production capacity is gradually climbing, saving energy for future development

Based on the production capacity of ultrasonic gas meters and vehicle gas sensors, Jiashan Sifang has advanced refrigerant leak monitoring sensors and car seat ventilation fans to the mass production stage; the medical fan production line is ready; and the design and planning of the high temperature fan production line has been completed. In terms of supply chain management, Jiashan Sifang has achieved independent production of electronic parts and injection-molded parts, and economies of scale are beginning to show. The Sifang factory in Hungary will plan the development path of the Hungarian Sifang production base in stages based on downstream market demand, the company's production capacity, etc., to improve the company's response speed to European customer needs and promote the continuous and rapid development of overseas business.

Profit forecasting and valuation

We expect the company's net profit to be 1.2 billion yuan, 160 million yuan, and 200 million yuan, respectively, corresponding to 24-26 PE multiples of 20, 15, and 12 times, respectively, to maintain a “buy” rating.

Risk warning

The recovery of the HVAC business fell short of expectations, the expansion of emerging businesses fell short of expectations, and production capacity at plants in Jiashan and Hungary fell short of expectations.