Core views

Demand in the 2024H1 domestic real estate market is weak, and the company's performance is under pressure in the short term. At the same time, the pressure on the industry to clear inventory before the implementation of the new national standard has intensified competition. At the same time, against the backdrop of declining demand, the fire electronics industry has accelerated its clearance, and the company's share has increased.

The field of fire electronics is rich in product categories and has broad market prospects. As an industry leader, the company has formed a “exploration-escape-extinction” integrated business pattern covering all categories in the civil/commercial, industrial/industrial, and overseas fields, and is expected to fully benefit from the trend of pattern optimization in the medium to long term.

occurrences

The company released its 2024 semi-annual report. 2024H1 achieved revenue of 2.264 billion yuan, +0.54% year over year; realized net profit attributable to mother 0.189 billion yuan, or -34.28% year on year; realized net profit deducted from non-mother 0.161 billion yuan, or -38.86% year over year.

Among them, 2024Q2 achieved revenue of 1.348 billion yuan, -5.16% YoY; realized net profit of 0.11 billion yuan, or -47.52% YoY; realized net profit of 0.094 billion yuan without deduction to mother, or -53.24% YoY.

Brief review

The real estate market is weak, the industry clears inventory before the implementation of the new national standard, and the company's performance is under pressure in the short term. At the same time, the industry clears up at an accelerated pace

The 2024H1 fire alarm business and intelligent evacuation business in the domestic civil/commercial sector achieved revenue of 1.452 billion yuan, or -8.62% year-on-year, mainly due to declining demand and increased competition in the domestic civil and commercial fire electronics market. On the one hand, 2024H1 is -21.8% of the country's housing completed area, leading to a decline in demand for fire electronic products; on the other hand, the new national standard for fire alarm and evacuation products was released on April 29, 2024 and will be officially implemented on May 1, 2025. The implementation of the new national standard will accelerate the clearance and concentration of small and medium-sized enterprises in the medium to long term, but in the short term, it will still put inventory pressure on the industry and increase market competition.

Looking forward to the future, the company has now focused on optimizing dealer channels, customer structures, and price strategies. The market share continues to rise steadily, and the major trend of industry concentration is becoming more and more clear.

Overseas and industrial markets have blossomed a lot, achieving high revenue growth

1) Overseas business segment: 2024H1 achieved overseas revenue of 0.373 billion yuan, +24.70% year-on-year, and continued impressive growth. Furthermore, with the completion of the acquisition of FB Group by the company in February 2024, the company has now formed an overseas fire alarm matrix centered on Canadian Maple Armor, CO Experts+ French Fincur+ Spanish Detnov+ British Firehawk, and has shared the global market with UL/ULC/CE/NF/FM/3C certified products.

2) Industrial/industry sector: 2024H1 continues to develop the industrial fire protection market, deepening the four core scenarios of traditional industrial industries (petroleum and petrochemical, iron and steel metallurgy, etc.), pan-industrial industries (tunnels, subway rail transit, etc.), high-end manufacturing (pharmaceutical chemicals, lithium batteries, wineries, etc.), and electric energy storage (substations, electrochemical energy storage power plants, etc.). Among them, the “Blue Bird” brand alone achieved a delivery amount of 0.24 billion yuan for industrial projects, an increase of about 69% over the previous year. Looking at some high-end scenarios, 2024H1 delivered more than 40 million yuan in the data center sector, +30% over the same period, completed the supply of more than 10 GWh energy storage cabinet fire protection systems in the energy storage and fire protection sector, nearly doubled over the previous year, and innovatively proposed advanced, safe, and reliable subway FAS system solutions in the subway field.

Increase the dividend ratio and repurchase shares several times, showing management confidence 1) Increase the dividend ratio: According to the company's “2023 Annual Equity Distribution Implementation Notice”, the company distributed cash dividends of RMB 3.5 (tax included) to all shareholders for every 10 shares, and the dividend payment rate reached the highest level in history of 39.53%, an increase of about 10 pcts over the previous year.

2) Multiple share repurchases: In June 2024, the company completed the cancellation of the 14.73 million shares repurchased (accounting for 1.94% of the company's total share capital before cancellation); in July 2024, the company's shares were repurchased at a price of no more than 16 yuan/share, with a repurchase amount of 0.1-0.2 billion yuan. It is intended to use the repurchased shares for employee stock ownership plans or equity incentives. In September 2024, the company announced that the use of these repurchased shares was changed from “for use in company employee stock ownership plans or share incentives” to “for cancellation and reduction of cancellation and reduction The “registered capital of the company” conveys to investors the firm confidence and high recognition of the company's long-term intrinsic value.

Profit forecasting and investment advice

The field of fire electronics is rich in product categories and has broad market prospects. As an industry leader, the company has formed an integrated “exploration-escape-extinction” business pattern covering all categories in the civil/commercial, industrial/industrial, and overseas fields. It is expected to fully benefit from the trend of concentrating the industry pattern towards the head in the medium to long term. The company is expected to achieve revenue of 5.103, 5.884, and 6.712 billion yuan respectively in 2024-2026, +2.65%, +15.29%, and +14.08% year-on-year net profit of 0.517, 0.632, and 0.749 billion yuan, respectively, with year-on-year increases of -21.51%, +22.13%, and +18.65%, corresponding to 2024-2026 PE valuations of 12.87, 10.53, and 8.88 times, respectively, maintaining the “buy” rating.

Risk analysis

1) The weak real estate market poses the risk of a decline in demand for fire protection products: The fire protection industry is closely related to the overall economy and investment in the real estate market. Since 2024, the country's housing completion area has declined year on year, causing demand for fire electronics products to decline. At the same time, industry competition has intensified. If the real estate market continues to weaken, it may adversely affect the company's performance.

2) Increased competition in the industry brings the risk of declining profit margins: The new national standard for fire alarm and evacuation products was released on April 29, 2024, and will be officially implemented on May 1, 2025. Although the implementation of the new national standard is expected to regulate the industry in the medium to long term, and may be beneficial to leading enterprises, small and medium-sized enterprises with strong R&D capabilities and rapid product iteration, in the short term, before the implementation of the new national standard, there may be some pressure to remove inventory, or increase market competition.