The company released its 2024 semi-annual report. 2024H1 achieved revenue of 0.41 billion yuan, +14.93% year over year; net profit to mother 0.072 billion yuan, +15.35% year over year; net profit without deduction of 0.071 billion yuan, +19.52% year over year. Looking at the 24Q2 single quarter, the company achieved revenue of 0.24 billion yuan, +16.17%, +41.11% month-on-month; net profit to mother 0.055 billion yuan, +43.10% year-on-year, +218.47% month-on-month; net profit after deduction of 0.054 billion yuan to mother, +48.26% year-on-year and +229.94% month-on-month.

Revenue grew steadily and profitability improved in 24Q2. 24H1 promotes the steady development of the company's various businesses through product technology innovation, improvement of domestic and overseas sales channels, and strengthening internal management, etc., and the revenue side continues to grow. The comprehensive gross margin of 24H1 Company was 42.60%, -2.22pcts year on year; the net interest rate was 17.53%, +0.06pcts year on year. The slight increase in net interest rate was mainly due to a decrease in expenses such as share payments and management remuneration, which led to a 2.91 pcts year-on-year decrease in the cost ratio during the period. Looking at Q2 alone, the company's comprehensive gross margin was 46.39%, +1.93 pcts, and +9.16 pcts month-on-month. We determined that the gross margin improved significantly; 24Q2's net margin was 22.79%, +4.29 pcts year over month, and +12.69 pcts month-on-month, mainly due to rising gross margin and cost-side control optimization. The cost ratio for the 24Q2 period was 18.34%, and -3.25 pcts year-on-year, respectively. pcts/-1.42pcts/+0.46 pcts.

Channel expansion and product upgrades go hand in hand, and we are optimistic about the growth trend in the second half of the year. 1) In terms of channel layout, the company actively promoted the transformation and upgrading of product promotion, channel improvement, product service, and sales team building, participated internally in academic exchange activities organized by major domestic exhibitions and industry associations to promote products, and increased the construction of direct sales teams and direct sales customers on the basis of a mature distribution system. Currently, the company has reached cooperation with key customers in some key industries; improved the layout of overseas distribution dealers, and achieved steady revenue growth. 24H1 achieved overseas revenue of 0.023 billion yuan, compared with +43.11%. We believe that as overseas sales channels continue to improve, the high increase in product export revenue is expected to be realized. 2) In terms of product upgrades, the company continues to carry out cutting research on difficult materials in aerospace and other fields, and has achieved certain results in research and development of coated tools for heat-resistant alloy processing. In the future, it is expected to achieve technological breakthroughs and import substitution in the field of high-end tools, and product competitiveness and value can be expected to increase. We believe that as the peak consumption season in the 3C sector approaches in the second half of the year, the total production capacity will continue to be released. At the same time, the share of high-value products is expected to increase, the share of high-value products is expected to increase, the blade business volume and price trend may continue, and the company's profitability is expected to continue to increase.

Invest in a high-performance bar production line to enhance the market competitiveness and profitability of the turnkey business. According to an announcement issued on August 6, the company plans to invest 0.36 billion yuan to build a high-performance bar profile production line. The construction period is 34 months, and the production capacity is expected to reach 1,000 tons per year after delivery to improve the overall production capacity layout of the company's hard alloy tool business. The company's investment in bar production capacity can, on the one hand, guarantee the stability of the quality of raw materials for overall tool production and the reliability of supply, which is conducive to controlling the quality of complete tool products and improving market competitiveness; on the other hand, increasing the proportion of self-supplied products to achieve cost reduction, laying a solid foundation for continuous improvement in profitability in the future.

Investment advice

We expect the company to achieve operating income of 0.981/1.21/1.386 billion yuan from 2024 to 2026, +23.40%/+14.51% year over year; realized net profit to mother of 1.98/2.68 /0.328 billion yuan, +25.31%/+35.59%/+22.23% year over year. The current stock price corresponds to PE 15/11/9 times, maintaining a “buy” rating.

Risk warning

Market competition increases risk; downstream market demand falls short of expectations, etc.