Incidents. On July 15, 2024, the company announced a pre-increase in the 2024 semi-annual results. In the first half of 2024, the company expects to achieve net profit of 0.088-0.098 billion yuan, a year-on-year increase of 9348.14% to 10421.80%; it is expected to achieve net profit of 0.078 billion yuan to 0.088 billion yuan after deduction. Among them, in 24Q2, the company expects to achieve net profit of 0.047-0.057 billion yuan, a year-on-year increase of 213.33%-280.00%, and an expected increase of 14.63%-39.02% month-on-month; it is expected to achieve net profit of 0.04-0.05 billion yuan after deduction, which is expected to increase 344.44%-455.56% year over year, with an expected increase of 5.26%-31.38% month-on-month.

The volume and price of the main products rose sharply, and 24Q2 set a record for the highest single quarter. According to the company's announcement, in 24H1, sales of the company's main products increased by about 19.70% year on year, sales revenue increased by about 29.10% year on year, and the main business development trend is good. At the same time, the company continues to deepen cooperation with brand customers, and the customer structure and product structure are continuously optimized. Among them, the proportion of high-margin and high-value-added products such as sports, electronic products, and automotive interiors increased, so that the company's gross margin increased dramatically in the first half of the year 24 compared to the same period, and profit growth was remarkable.

“Low base, high growth” - automotive interiors are beginning to take shape, helping to reach a new level of performance. Since entering the automotive interior field in 2015, the company first cooperated with the local automobile brand JAC in Hefei, then gradually became a supplier of well-known automobile brands such as Toyota, Great Wall, Xiaopeng, and BYD, and gradually expanded in the second half of 2023. In the second half of 2024, many BYD models were targeted; the fixed projects obtained by the end of June 24 are expected to be mass-produced by the end of 2024 or the first half of 2025. We believe that with the company's accumulation of advantages and market share expansion in automotive interiors, the automotive interior business is expected to achieve a “low base and high growth” trend in the future.

“Stable operation, large space” - Amway Vietnam climbs the slope, laying the foundation for long-term development. Amway Vietnam's total design production capacity was 12 million meters. By the end of 2023, Amway Vietnam's first two lines had already been put into operation, but due to Amway Vietnam's overall positioning in the middle and high-end market, the customer certification cycle was long, and production and sales had not yet reached the break-even point (monthly output was about 0.2-0.3 million meters as of the end of June 24), with a loss of 20.62 million yuan in 23. Entering 2024, Amway Vietnam has successively passed supplier certifications from Nike (February 24), and Adidas (April 24), and Adidas (May 24). Along with the volume of orders from the above customers, and the remaining 2 production lines are expected to be commissioned and produced in September and December 24, respectively, in the second half of the year, we believe that Amway Vietnam's profit in 24 is expected to reduce losses, laying a solid foundation for 25 years of development.

Investment advice: The company is a domestic PU synthetic leather company. In the future, demand for new eco-friendly products will increase and expand and release from downstream customers. In addition, the Vietnamese factory will soon enter a period of capacity release, and the company's performance is expected to grow significantly in the future. We expect the company's net profit for 2024-2026 to be 0.202, 0.262, and 0.316 billion yuan, EPS 0.93, 1.21, and 1.46 yuan, respectively. The current price (July 12, 2024) corresponding PE is 16x, 12x, and 10x, respectively, maintaining the “recommended” rating.

Risk warning: the risk of fluctuating raw material prices, the risk of increasing natural gas supply and costs, the risk of production capacity not being fully utilized, etc.