1H24 results are in line with our expectations

The company announced 24H1 results: revenue of 1.386 billion yuan, up 21.1% year on year; net profit to mother of 0.196 billion yuan, corresponding profit per share of 0.23 yuan, up 20.1% year on year. Looking at a single quarter, 2Q24's revenue was 0.754 billion yuan, up 46.5% year on year, and net profit to mother was 0.108 billion yuan, up 25.9% year on year. The results were in line with our expectations.

Revenue from the main business picked up, and gross margin declined. 1H24's revenue from breakers and hydraulic components was 0.506/0.652 billion yuan respectively, and revenue from 1H24 breakers/hydraulic components was -3.4%/+10.2% year-on-year. Other revenue increased 578.1% year-on-year from 2.9 million yuan in the first half of 2023 to 0.197 billion yuan. Other revenue growth was contributed by the construction machinery battery PACK business. 1H24/2Q24's comprehensive gross margin decreased by 2.6/6.4ppt to 29.8%/29.0%, respectively. The decline in gross margin was mainly due to an increase in the share of the battery PACK business.

The effect of fee control was obvious, and the net profit margin declined due to gross margin. 1H24's sales/management/R&D expense ratio decreased by 0.3/0.7/0.4ppt to 4.0%/3.7%/4.3% year on year, and the financial expense ratio decreased by 0.2ppt to 1.1% year over year, mainly due to interest expenses. Among them, this year's exchange loss was 2.611 million yuan, and last year's exchange loss was 1.445 million yuan. 1H24/2Q24 The company's net profit margin decreased by 0.1/2.3ppt to 14.2%/14.3% year-on-year. The net cash flow inflow from 1H24's operating activities was $0.146 billion, compared with a net inflow of 0.024 billion yuan for the same period last year.

Development trends

Domestic demand for excavators is at the bottom, and the company cooperated with Kawasaki Heavy Industries. According to data from the Construction Machinery Association, in the first half of 2024, excavator sales fell 5.15% year on year, and domestic/export sales fell by +4.66%/-13.8% year over year. Domestic excavators are mainly driven by small excavators, and demand is still at the bottom. Against the backdrop of weak domestic demand, the company achieved a 10% growth rate for hydraulic components and 53% overseas revenue. Meanwhile, in August 2024, the company Eiton Development announced the establishment of Aizaki Precision with Kawasaki Heavy Industries, the world's leading manufacturer of hydraulic components. Aizaki Precision is mainly engaged in the sale of high-end hydraulic pumps, valves and hydraulic rotary motors.

The company actively expands into other industries and continues to observe new business developments. The company continues to expand into the field of industrial robots, tools and construction machinery battery PACK business, contributing mainly to revenue growth in the first half of 2024. In the first half of 2024, its construction machinery battery PACK manufacturer Yien New Power Technology achieved revenue of 0.159 billion yuan. The same period last year was 54.4685 million yuan. The revenue growth rate was significant, achieving profit of 2.1222 million yuan, compared to 3.2068 million yuan in the same period last year.

Profit forecasting and valuation

Basically maintaining the 2024 EPS forecast of 0.39 yuan and introducing the 2025 forecast of 0.43 yuan, the company's current stock price corresponds to 39x/36x P/E for 2024/2025. Maintain the target price of 19.49 yuan, corresponding to 2024/2025 50x/45x P/E, with 27% upside. Maintain outperforming industry ratings.

risks

Excavator sales fell short of expectations; new products such as pumps and valves fell short of expectations.