Dechang Co., Ltd. released its 2024 semi-annual report. During the reporting period, the company achieved revenue of 1.9 billion yuan, +38% year over year; net profit to mother of 0.21 billion yuan, +21% year over year. Among them, the company achieved revenue of 1 billion yuan in a single quarter, +33% year-on-year; net profit to mother was 0.12 billion yuan, or -6% year-on-year.

Home appliances are growing rapidly, benefiting from new customers and orders in new categories. Among them, vacuum cleaners achieved revenue of 0.97 billion yuan, +26% year-on-year, and other small household appliances achieved revenue of 0.68 billion yuan, or +56% year-on-year. Steady growth in TTI terminal sales led to inventory replenishment; vacuum cleaners and personal care products from new strategic customer SharkNinja grew significantly; and OEM orders for environmental appliances from hot customers continued to grow. The company continues to enrich its reserve product lineup, open up market space in new fields, and continue to deepen cooperation with customers. The overall home appliance business has continued to grow steadily over the past 23 years.

The auto parts business continues to expand and continue to gain new fixed positions. The auto parts business achieved revenue of 0.15 billion yuan, +69% over the same period last year. Seven new targeted projects were added in the first half of the year, and the total life cycle sales amount exceeded 1.5 billion yuan. Nexteer's project expanded from domestic to European and North American markets, and mass production was launched in Europe. The company has deep technical reserves, strong competitiveness in EPS motors and brake motors, and the product auto parts business continues to grow rapidly. We expect annual revenue of 0.4 billion yuan.

Increased gross margin and reduced exchange benefits led to a temporary decline in net interest rates. Q2 gross margin reached 17.9%, +0.6pct year over year, showing scale effects brought about by new customers and the introduction of new products, and rapid revenue growth.

In terms of period expense ratios, sales/management/R&D/finance expense ratios were +0.5/-0.3/+0.4/+6.4 pct, respectively, and overall control was good; drastic changes in financial expenses were mainly due to a year-on-year decrease in exchange earnings. Q2 net margin reached 11.7%, -4.9pct year over year.

Investment advice: We expect the company to achieve net profit of 0.41/0.55/0.72 billion yuan on 24-26, respectively, or +28%/+32% YoY. The current stock price corresponds to PE valuation of 14/11/8 times, respectively, to maintain a “highly recommended” investment rating.

Risk warning: Overseas demand falls short of expectations, large fluctuations in exchange rates and raw material prices, etc.