Core views

24Q2's revenue and net profit to mother were 1.058 billion yuan and 0.103 billion yuan respectively, -21.61% and +4.67% year-on-year, and -2.55% and +38.21% month-on-month respectively. Q2 The company's revenue was temporarily under pressure. Profits were improved through structural optimization, and gross profit margin and net interest rate rebounded smoothly. The company is a domestic general lighting leader. The traditional main business has contributed steadily to profits. The new business “Vehicle Controller+Vehicle Lighting” has ushered in rapid growth. It has now achieved LDM and BMS support for top international car companies, while strengthening software and hardware capacity building and domain controller research and development. The future is expected to usher in both performance and valuation improvements.

occurrences

The company released its 2024 semi-annual report. The first half of the year achieved operating income of 2.143 billion yuan, a year-on-year decrease of 12.70%; net profit to mother was 0.178 billion yuan, an increase of 8.05% year-on-year, after deducting non-net profit of 0.167 billion yuan, an increase of 1.75% year-on-year.

Brief review

Q2 Revenue was temporarily under pressure, and structural optimization improved profits. 24H1's revenue, net profit to mother, and net profit after deducting non-net profit were 2.143 billion yuan, 0.178 billion yuan, and 0.167 billion yuan, respectively, -12.70%, +8.05%, and +1.75% year-on-year respectively. On a quarterly basis, 24Q2's revenue, net profit to mother, and net profit after deducting non-net profit were 1.058 billion yuan, 0.103 billion yuan, and 0.097 billion yuan, respectively, -21.61%, +4.67%, and -11.35% year-on-year, respectively, -2.55%, +38.21%, and +38.45% month-on-month respectively. On the revenue side, the main reason for the year-on-month decline in Q2 revenue was due to disturbances in its own high base, which also reduced the scale of business in high-risk regions, and the impact of bottoming out prices in the lighting industry. By business, in terms of the main lighting industry, data from the General Administration of Customs shows that in the second quarter, the export value of China's lamps and lighting devices and components was about 10.835 billion US dollars, +1.1% year on month, and +10.7% month on month; however, the export price index for incandescent bulbs, LED light sources and other products declined during the same period, indicating that as overseas markets came to an end, the export volume of lighting products first rebounded. Due to the high revenue base for the same period last year, and the pressure drop on the business scale in relatively high-risk regions, the overall price of the superimposed industry was low, and 24Q2's main lighting revenue may have declined. 24H1 is making adjustments to the product sales structure, such as increasing the share of high-value-added lighting products, reducing the business scale in high-risk regions, and continuously developing new customers and new channels, etc., and the revenue side of the main 24H2 lighting industry is expected to rise steadily. In terms of automotive business, the subsidiary Debon Automotive Lighting and Shanghai Liangqin 24H1 had total revenue of 0.288 billion yuan, -10.6% over the same period last year. Since 2023, the company has successively received fixed projects such as BMS (for Wanxiang A123), Ma Ruili (LDM, headlight ECU, taillight emitting board, etc.), Yanfeng Biou (light-emitting grille PCB bracket assembly), and NIO (headlight controller); in the first half of 2024, the company's automotive business was targeted at nearly 0.9 billion yuan, which will continue to contribute to performance growth and further revenue recovery. On the profit side, Q2 net profit to mother achieved month-on-month growth, or benefited from factors such as the optimization of the main lighting business structure, reduction in raw material costs, and the company's own cost reduction and efficiency; in addition, Q2 fair value changes and narrowing asset impairment losses also contributed to the year-on-year increase in net profit to the mother.

Profitability rebounded year on month, and cost control remained steady. The 24Q2 company's gross profit margin and net profit margin were 21.46% and 9.54% respectively, +4.21pct and +2.19pct, respectively, and +0.67pct and +2.51 pct month-on-month, respectively. Gross margin was superior to the same period in the past three years, and net interest rates rebounded year-on-year. As mentioned above, the reasons may be factors such as sales structure optimization, cost reduction and efficiency, and narrowing losses in some profit and loss categories. The Q2 period/sales/management/R&D/finance expense ratios were 9.86%, 4.46%, 4.44%, 4.17%, and -3.23%, respectively, +3.23%, +3.23% year-on-year, +3.79pct, +1.38pct, +1.09pct, -0.03pct, -1.61 pct, +0.73 pct, -0.50pct, +0.36pct, and -2.19pct.

The main lighting industry is expected to usher in revenue recovery+profit increase, and orders for the automotive business are full and will continue to grow. The company's business is mainly divided into two major segments: general lighting and automotive business. Among them, general lighting is the company's traditional main business, and the automotive business has been the focus of development in recent years. (1) The company's main lighting business will benefit from the recovery of the industry and the optimization of its own product structure, gradually recovering revenue and increasing profits. Currently, China is the world's largest producer and exporter of lighting and electrical products, and its share of the global market has increased to 60%. Looking at the short term, inventory removal from overseas markets has basically come to an end, and the industry is about to begin the inventory replenishment cycle, which is expected to drive the volume and price of the company's traditional lighting business to rise sharply, so that the revenue side can gradually recover. Looking at the medium to long term, international lighting giants have gradually divested their related businesses in recent years, while small and medium-sized enterprises are facing tremendous pressure such as supply chain stability, channel changes, and continued profit compression. Clearance is being accelerated. Market concentration is expected to increase, and the company is expected to benefit as an industry leader. Furthermore, in recent years, the company has insisted on “strengthening commercial lighting” in the general lighting sector, and the gradual optimization of the product structure will also boost the profitability of the company's main lighting business. (2) According to the automotive business development strategy, the company will increase investment in the field of “vehicle lighting+vehicle controller” and will continue to contribute to the increase in performance. The company has established good cooperative relationships with well-known parts companies such as Panasonic, Huayu Vision, Wanxiang, Marelli, Hella, Sanli, Yanfeng Biou, Valeo, Elios, and Lingwei Vision. The terminals cover Porsche, Audi, Volkswagen, Nissan, Daihatsu, Toyota, GAC, Ideal, Zero Run, Changan, Geely, NIO, and Chery. The company has successfully implemented the automotive ECU manufacturing unit expansion project and the automotive lighting structural component expansion and upgrade project. The relevant fixed-point projects are being produced steadily and in batches, and received an additional fixed target of nearly 0.9 billion yuan in the first half of 2024, which is expected to continue to contribute to the increase in performance.

Investment advice

The company is a leading domestic general lighting company. The traditional main business contributes steadily to profits, and the new business “vehicle controller+vehicle lighting” ushered in rapid growth. Seizing the smart car transformation window, the company has now achieved LDM and BMS support for top international car companies, while strengthening software and hardware capacity building and domain controller research and development. It is expected that both performance and valuation will improve in the future. The company's net profit for 2024-2025 is estimated to be 0.42 billion yuan and 0.49 billion yuan, respectively, corresponding to the current stock price PE, which is 13X and 11X, respectively.

Risk analysis

Overseas market customer demand falls short of expectations; risk of price fluctuations in overseas markets; risk of fluctuating sea freight prices and uncertain delivery cycle; risk of increased foreign exchange losses and hedging effects; domestic automotive electronics market customer demand falling short of expectations; risk of controller business unit price and shipment volume fluctuations; risk of declining product profitability; risk of falling BMS, LDM and new product development progress; risk of controller customer development not meeting expectations; risk of domestic factory capacity building process falling short of expectations; domestic controller industry competition increasing risk; domestic automobile sales not meeting expectations Expected risk; risk that vehicle electrification progress falls short of expectations; risk of fluctuations and shortages in raw material prices.