The company released its 2024 semi-annual report: In the first half of 2024, the company achieved operating income of 1.143 billion yuan, a year-on-year increase of 17.36%, net profit to mother of 0.091 billion yuan, a year-on-year decrease of 19.72%, and net profit after deducting 0.08 billion yuan. Among them, 2024Q2 achieved operating income of 0.619 billion yuan, a year-on-year increase of 7.14%, net profit to mother of 32.41 million yuan, a year-on-year decrease of 55.92%, and net profit of 26.84 million yuan after deduction, a year-on-year decrease of 61.96%.

The company's smart toilet business performed better than the industry, and revenue at home and abroad increased year-on-year. According to Aowei Cloud's online marketing data, sales and sales volume of the smart toilet industry have declined in the first half of 2024, down 19.9% and 14.7%, respectively. The company's smart toilets and covers achieved revenue of 0.687 billion yuan, an increase of 26.61% year on year. Given the national precedents with high penetration rates (close to 90% in Japan and 60% in South Korea) and the trend of domestic consumption upgrades, the long-term development prospects of the smart toilet industry are still promising. In addition, water tanks and accessories achieved revenue of 0.323 billion yuan, a year-on-year increase of 7.90%; same-layer drainage products achieved revenue of 0.088 billion yuan, a year-on-year decrease of 16.91%. By region, the company achieved revenue of 0.809 billion yuan/0.333 billion yuan at home and abroad, respectively, an increase of 16.79%/18.79% over the previous year.

Relevant national policies have begun to be implemented, and the smart toilet industry pattern is expected to improve. Price competition in the industry is fierce. According to Aowei Cloud's online promotion data, “the average price of an online smart all-in-one computer in 2018 was 4,060 yuan, and the smart toilet lid was 2,052 yuan; by 2023, the average price of smart all-in-one computers and smart toilet covers was 2505 yuan and 1,383 yuan respectively.” However, in April 2024, the State Administration of Market Regulation made it clear that it will implement mandatory CCC certification for smart toilets and officially implement it on July 1, 2025. This move will accelerate the reshuffle of the industry and eliminate brands with poor technology, poor quality, and inadequate service. The company became one of the first certified companies in July of this year, demonstrating its compliance and quality advantages. As industry standards improve and consumer awareness increases, brands with technological innovation and quality service will become more competitive in the market.

24Q2 gross margin declined slightly, and sales expenses increased significantly. 2024Q2's net profit margin was 5.17%, or 7.63pct year on year; gross profit margin was 28.02%, -1.71 pct year on year, mainly due to an increase in the share of light smart toilets in the smart toilet category. Currently, light smart toilets are a trend in industry demand, which helps increase the industry penetration rate. On the cost side, 2024Q2's sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio reached 14.89%, 4.91%, 3.99%, and -1.10%, respectively, compared with +7.45pct, -1.45pct, +0.65pct, and +3.08pct, respectively.

The increase in financial expenses is mainly due to an increase in the company's marketing expenses to promote its own brand.

Profit forecast and investment rating: We expect the company's net profit for 2024-2026 to be 0.219, 0.249, and 0.287 billion yuan, respectively, up 0.0%, 13.8%, and 15.4% year-on-year. The current closing price corresponds to 2024-2025 PE 13 and 11 times. As a toilet flush component and smart toilet faucet company, the company was given a PE valuation of 14 to 15 times in 2024, corresponding to a reasonable value range of 7.32 to 7.85 yuan, giving it a “superior to the market” rating .

Risk warning: Terminal demand falls short of expectations, private brand development falls short of expectations, raw material prices fluctuate, and exchange rates fluctuate.