Key points of investment:

The Bull Group Home Improvement Festival was launched and continued around January, covering all categories of products in the decoration channel. According to the official account of Bull Group, the company started the Home Improvement Festival on September 15 and continued until October 20, covering all categories of decoration channels, including wall openers, lighting, headlights, rail sockets, bathtubs, fan lights, drying racks, smart locks, and curtain machines. The Home Improvement Festival promotion is strong. Consumers who buy all types of Bull products for 10,000 yuan or more can write off a deduction of 1 yuan to 1,000 yuan at the store.

The flagship store reform continues to advance, and with one-stop promotion of all categories, it is expected to hedge against the downward pressure on the decoration channel industry.

24H1/24Q2 decoration channel revenue (that is, smart electrical lighting business in the report) was 12%/8% year-on-year. Q2 has been disrupted by external shocks, but the performance is still significantly better than the industry. The main reason is that the company has implemented category exclusion reforms in the decoration channel since 2020, and the share of each category has increased in an orderly manner; in 2024, the company focused on launching flagship stores. The flagship stores sell 100% of the bull brands, covering all categories of products. Store efficiency is expected to continue to improve with the support of the home improvement season, driving H2's revenue in all categories. By category: 1) Wall opening: 24Q2 revenue is double digit year over year, higher than smart electrical lighting as a whole. It is mainly due to the company's deep accumulation of product power and channel power in the wall opening category, and the ability to buck the trend and increase share; 24H2 revenue is expected to rise steadily year on year; 2) LED lighting: 24Q2 revenue increased slightly year on year, mainly due to LED lighting with higher customer order value for the whole house, which is more disrupted by the external environment; 3) No headlights: 24Q2 revenue is still above 20% year on year, of which the bull The brand maintains market share by launching cost-effective products ; The Muguang brand focuses on building a single-store model. Since May, the company has implemented a Muguang benchmark store construction plan to help stores diversify traffic sources, such as Douyin live broadcasts, cross-industry alliances, etc., and optimize smart product solutions; the Home Improvement Festival is expected to attract offline stores and continue to consolidate the quality of single stores.

The traditional electrical connectivity business is growing steadily, and price growth brought about by the product structure is still the main driving force. 24Q2's revenue from traditional electrical connections was about 6% year-on-year, slightly faster than Q1. The main reason is that Q2 companies have yet to raise prices, and their enthusiasm for downstream procurement has increased. Among them, sockets mainly rely on price increases. Looking ahead: Sockets promote product structure upgrades around quality and personalization. Sales of high-value special models such as rail sockets benefit from Home Improvement Festival promotions and are expected to continue high growth; the launch of 24H1 Bull 30+ power tools is expected to achieve better channel reuse results in the future.

The performance of new energy charging in the next few years is still in the rapid release channel. 24H1/24Q2 new energy charging revenue was 120%/130% year-on-year. Channels and product lines have been rapidly expanded, energy storage services have been added, and self-production of core components has optimized profit margins. The performance will still be in the rapid expansion channel for the next few years.

Under the trend of brands going overseas, internationalization is expected to become another growth pole in the medium to long term. Starting in 2023, the company will raise its internationalization strategy to the company's strategic level; specific targets: 1) Southeast Asia and other developing countries: Southeast Asia and other places still have the dividends of national home appliances, and traditional core categories have strong brand and product cost performance advantages in developing countries; successful trial sales in Vietnam and other places are expected to replicate the domestic distribution channel strategy. 2) Developed countries such as Europe and America: Mainly in the new energy category, covering products such as charging and energy storage, on the channel side, cooperation with local installers is expected to open up new growth points!

Profitability continues to improve, and H2 profit margins are expected to rise steadily. Raw material hedging and price increases have basically calmed short-term fluctuations in raw materials. BBS lean management continues to contribute to cost reduction in various businesses and applications. For example, 24H1 automated warehousing continues to spread from wall opening to converters and switches, and BBS from production and popularization to R&D and marketing; investment in product promotion and other expenses is expected to decline sequentially, and profitability continues to improve.

The company is a benchmark enterprise in the field of civil electricians. The traditional core category has deep moats, and channel reform dividends have been released; it is expected to continue its competitive advantage on many new tracks with no main lights and new energy charging. We maintain our 2024-2026 profit forecast of 4.463/5.271/6.278 billion yuan, +15.3%/+18.1%/+19.1% year-on-year. The PE corresponding to the current market value is 22/19/16 times, and still maintains a “buy” rating!

Risk warning: Competition for new businesses has intensified; downside risks in real estate have intensified.