The company released its 2024 semi-annual report. 2024H1 performance increased 15.33% year on year. The main relay business achieved good overall growth, and the electrical products business developed steadily. Maintain an increase in holdings rating.

Key points to support ratings

The company's performance in the first half of 2024 increased 15.33% year on year: the company released its 2024 semi-annual report, and 2024H1 achieved revenue of 7.231 billion yuan, up 8.89% year on year; realized profit of 0.844 billion yuan, up 15.33% year on year; after deducting non-net profit of 0.786 billion yuan, up 4.20% year on year.

Gross margin was slightly under pressure, and per capita sales repayment improved: 2024H1's comprehensive gross margin fell 0.97 percentage points year on year to 34.78% year on year, comprehensive net margin increased 0.46 percentage points year on year to 15.31% year on year, and the operating efficiency index per capita sales return was 0.602 million yuan, up 9.1% year on year. In an external environment where material prices are rising rapidly and competition is intensifying in some industries, the company optimized internal management, and the main operating indicators continued to achieve good growth.

The company's main relay business had a stable market share, and gross margin declined slightly: 2024H1's main relay business achieved operating income of 6.494 billion yuan, an increase of 8.00% over the previous year. Gross margin decreased slightly by 0.72 percentage points year over year to 36.15%. On the one hand, the downstream relay application market showed an overall recovery trend. Demand in the home appliance sector recovered, manufacturing inventory removal efforts decreased, smart meters increased rapidly, and global automobile production and sales increased slightly, driving the company's demand for relays in corresponding fields to improve. On the other hand, the company is actively developing new products. On the other hand, the company has set up 193 new products in the 2024H1 relay category and developed 193 new products, an increase of 16% over the previous year.

The electrical products business developed steadily, and revenue declined slightly: 2024H1, the company's electrical products business achieved revenue of 0.405 billion yuan, a year-on-year decrease of 3.98%; gross margin fell 0.82 percentage points year-on-year to 27.98%. We believe that the slight pressure on the electrical business is mainly affected by the downturn in the domestic construction distribution market, but by developing new energy, industrial, power grid and other application markets, the company has formed new growth points and promoted the steady development of the overall low-voltage switch business. At the same time, the company's new product categories have developed rapidly. With 2024H1, the company's shipments of film capacitors, current sensors, and connectors increased by 20%, 118%, and 129%, respectively.

valuations

Under the current share capital, in line with the company's semi-annual report reflecting the positive downstream demand, we adjusted the company's 2024-2026 earnings forecast to 1.59/1.83/2.09 yuan (the original 2024-2026 diluted forecast was 1.54/1.82/2.08 yuan), corresponding to a price-earnings ratio of 17.7/15.4/13.5 times; maintaining an increase in holdings rating.

The main risks faced by ratings

Downstream demand falls short of expectations; adverse changes in the overseas market environment; exchange rate fluctuations; progress in new business development falls short of expectations.