Core views

Q2 The company's revenue and net profit to mother were 0.615 billion yuan and 0.086 billion yuan respectively, +29.46% and +81.70% year-on-year respectively, +21.70% and +13.29% month-on-month respectively. The increase in the company's performance during the reporting period mainly benefited from steady growth in the main equipment manufacturing industry and a significant increase in the auto parts business. The company is based on the main manufacturing equipment business, with strong supply and demand and strong performance contributions. At the same time, it also enters fields such as integrated die-casting and lightweight chassis parts. Production capacity climbing+order release will drive a steady increase in the gross profit of the auto zero business, and it is optimistic that the company's performance valuation will both improve.

occurrences

The company released its 2024 semi-annual report. Revenue for the first half of the year, net profit to mother, and net profit after deducting non-net profit were 1.121 billion yuan, 0.162 billion yuan, and 0.153 billion yuan respectively, up 30.45%, 79.35%, and 95.75% year-on-year respectively.

Brief review

Q2 Business performance was high, mainly due to steady growth in the main equipment manufacturing industry and a significant expansion of the auto parts business. 24H1 achieved revenue, net profit to mother, and net profit after deducting non-net profit of 1.121 billion yuan, 0.162 billion yuan, and 0.153 billion yuan, respectively, of +30.45%, +79.35%, and +95.75% year-on-year respectively. Among them, Q2's single quarter revenue, net profit to mother, and net profit after deducting non-net profit were 0.615 billion yuan, 0.086 billion yuan, and 0.082 billion yuan, respectively, +29.46%, +81.70%, +110.01% year-on-year, and +21.70%, +13.29%, and +17.01%, respectively. On the revenue side, the steady growth of the main equipment manufacturing business and the volume of the auto parts business have contributed to a high increase in the company's overall revenue. By business, the sales revenue of the 24H1 automotive equipment manufacturing business and the automotive lightweight parts business was 0.834 billion yuan and 0.257 billion yuan respectively, +7.70% and +244.75% year-on-year respectively. Revenue from the main equipment manufacturing industry grew steadily, mainly due to a large number of new orders in 2023 and smooth delivery in the first half of 2024; as an incremental business, auto parts revenue increased sharply year over year, mainly due to the continuous mass production of related model projects under the slope of production capacity, and also benefited from the popularity of downstream Chery (major customer) products (24H1 Chery Group sold 1.1 million vehicles, +48% year over year, a record high for the same period). By region, 24H1 domestic and export sales revenue was 0.998 billion yuan and 0.123 billion yuan respectively, +38.46% and -11.31% year-on-year respectively. On the profit side, 24H1's profit grew faster than revenue, mainly benefiting from an increase in gross margin (+2.8 pct compared to the previous year, mainly an increase in gross margin for equipment manufacturing), an increase in other income (mainly due to government subsidies and value-added tax input tax plus deductions), and an increase in investment income of associated enterprises (mainly contributing to Fei Ruihu). On a quarterly basis, 24Q2 revenue and profit both achieved year-on-month growth, which is basically in line with the overall trend in the first half of the year. Among them, profit growth rate was lower than revenue, mainly due to fluctuations in investment income in joint ventures (a decrease of about 1.2 billion yuan month-on-month in Q2) and an increase in profit and loss for minority shareholders (about 0.67 billion yuan).

Q2 Gross margin increased steadily, and cost control remained steady. 24H1's gross profit margin and net margin were 24.15% and 16.15%, respectively, +2.80pct and +4.64pct, year-on-year, respectively. By business, the gross margins of equipment manufacturing and lightweight parts were 28.39% and 9.30% respectively, +7.12 pct and -6.19 pct, respectively, year-on-year. The gross margin of the main equipment manufacturing business increased dramatically and reached a record high for the same period in history. The gross margin of the auto zero business is temporarily under pressure, and is expected to rise steadily in the future as production capacity climbs and orders are released. Net interest rates have increased significantly, mainly benefiting from increased gross profit and other income and investment returns. On a quarterly basis, Q2 companies' gross profit margin and net profit margin were 24.49% and 16.08%, respectively, +4.84pct and +4.37pct year over year, and +0.76pct and -0.17pct, respectively. The 24Q2 period/sales/management/R&D/finance expense rates were 10.30%, 0.48%, 5.16%, 4.37%, and 0.29%, respectively, and -0.20pct, -1.64pct, +0.65pct, -1.38pct, -1.22pct, +0.65pct, -1.38pct, -1.22pct, +0.40pct, -1.21pct, +0.64pct, year-on-year, respectively.

The main manufacturing equipment industry has strong supply and demand and is operating steadily, and gross profit is expected to gradually improve after the auto parts business accelerates growth. The company is a leading enterprise in the domestic stamping mold industry, and has the advantage of “equipment+parts” integrated supporting services; in recent years, it has successfully expanded lightweight automotive parts as its incremental business based on the automobile manufacturing equipment business, and future performance is expected to grow steadily. By business: 1) Manufacturing equipment business: smooth expansion of production capacity+high quality customer structure+abundant on-hand orders, strong performance contribution. In terms of production capacity, the smart factory for cover parts and the new high-strength plate mold factory will be partially put into operation in 2024, and full production will be achieved by 25Q2. At that time, the company's delivery and order acceptance capabilities will be further enhanced. On the customer side, the company has established extensive partnerships with mainstream international luxury brands, and has successively developed a number of local automobile brand customers in the Belt and Road countries, while the domestic market focuses on leading traditional ownership+new power brands; in the first half of 2024, new customers include Toyota, Dacia and other “Belt and Road” local brands. In terms of orders, by mid-2024, the company had orders of 3.93 billion yuan, an increase of 14.95% over the end of 2023. 2) Lightweight parts business: The scale of revenue has increased significantly, and profitability will steadily improve in the future. In 2022, the company got involved in the field of lightweight automotive parts and successively obtained various models from Chery and other customers. As of 24H1, the auto zero business revenue and gross profit accounted for 23.0% and 8.8% respectively, +14.3 pct and +2.5 pct, respectively. Currently, the existing production line is still steadily climbing, and the Phase II plant is expected to start contributing to the increase by 2025. With the popularity of existing downstream models and the launch of new models, auto zero business orders are expected to be released at an accelerated pace, driving a steady recovery in gross margin through scale effects.

Investment advice

The company is based on the traditional main business of automobile manufacturing equipment, promoting comprehensive product, customer and brand upgrades. The share of orders from luxury brands and new energy brand customers has increased steadily, and the performance contribution is strong; it also grasps the window period for new energy vehicles to lightweight body and lightweight chassis upgrades, and successfully enters the fields of integrated die-casting and lightweight chassis components based on its own business synergy advantages, and is expected to open up a second growth curve. We expect the company's net profit to be 0.34 billion yuan and 0.45 billion yuan respectively in 2024-2025, corresponding to current PE values of 19X and 14X, giving it a “buy” rating.

Risk analysis

1. The industry boom falls short of expectations. Domestic economic recovery rebounded steadily in 2024, but the exact pace remains to be seen. Demand in the automotive industry may fluctuate accordingly; it will still take time to fully implement the trade-in policy for consumer goods such as automobiles, which will affect the recovery process of industry demand.

2. The competitive pattern of the industry has deteriorated. Domestic and foreign parts suppliers compete. With changes in supply factors such as technological progress and new production capacity investment, industry competition may intensify in the future, and the company's market share and profitability may fluctuate.

3. The progress of customer development and mass production of new projects fell short of expectations. The company accelerates the expansion of new customers. Considering the fluctuation in the R&D pace of new model projects of car companies, there may be fluctuations in the fixed project cycle within a specific period of time; in addition, the mass production schedule falls short of expectations due to the company's new production capacity construction or being affected by uncontrollable factors.