Description of the event

The company released its 2024 mid-year report. 24H1 revenue was 7.2 billion yuan, up 8.9% year on year; net profit was 0.84 billion yuan, up 15% year on year. Among them, 24Q2 revenue was 3.8 billion yuan, up 11.9% year on year; net profit was 0.49 billion yuan, up 22% year over year.

Incident comments

On the revenue side, the company's Q2 growth rate accelerated compared to Q1, reflecting some downstream trends. Specifically: 1) Consumer electronics sector: power relays in the consumer electronics sector showed good year-on-year growth, with home appliances-related businesses showing restorative growth; 2) Industrial equipment sector: market demand for industrial relays has recovered, and the company's shipments are steady and improving, which is expected to continue to benefit from demand recovery in the future; 3) Power and energy sector: power cascade relays have maintained relatively rapid growth, and the company is fully utilizing production capacity; 4) Automobile traffic sector: Weak current vehicle relays benefit from downsizing demand quantity, superposition The company's share increased significantly, achieving rapid year-on-year growth. At the same time, the company continued to promote the layout of five new categories of low-voltage appliances, film capacitors, connectors, current sensors, and fuses, and various businesses showed good development. Specifically: 1) Low-voltage electrical appliances: low-voltage switches and complete business remained flat year-on-year in the first half of the year, and the new energy, industrial, power grid and other application markets are expected to increase performance; 2) Film capacitors: the company's film capacitor shipments increased by about 20% year-on-year in the first half of the year. On the basis of the new energy sector, plans are being made to gradually develop the electric power and electronics fields; 3) Connectors: connector shipments in the first half of the year were more than doubled year-on-year. Capacity has improved; 4) Current sensors: The company's current sensor shipments more than doubled year-on-year in the first half of the year. Among them, sales of current transformers in the State Grid, Indonesia, Europe, and Australia markets all gradually increased, and profitability grew rapidly; 5) Fuses: Currently, the company has obtained verification of some new energy customer projects such as optical storage, and is expected to be shipped in the second half of the year.

On the profit side, the company's 24H1 and 24Q2 gross margins reached 34.8% and 34.6% respectively, down 0.2 pct and 1.4 pct year-on-year respectively; the decline in Q2 gross margin is expected to be mainly affected by increases in raw material prices, etc. In terms of the cost ratio, the cost rate during the 24Q2 period was 16.5%, up 2.3 pct year on year. Among them, the management cost rate and R&D cost ratio increased by 0.6 pct and 0.2 pct year on year, respectively, and the financial cost ratio increased by about 1.7 pct year on year. It is expected to be mainly due to exchange rate changes and a decrease in exchange earnings. At the same time, the company's Q2 fair value change income and investment income have formed a certain positive support. In the end, the company's net profit in Q2 grew rapidly year over year.

According to other financial data, 24Q2 had a net operating cash flow inflow of 1.2 billion yuan, a significant increase over the same period; 24Q2 capital expenditure was about 0.28 billion yuan, maintaining a relatively fast pace of production capacity construction.

We expect the company to continue to grow rapidly as part of the downstream economy recovers and continues to reduce costs and improve efficiency. The company's net profit is estimated at 1.63 billion yuan in '24, which is about 17.5 times PE. Maintain a “buy” rating.

Risk warning

1. Policy risks in the electric vehicle industry;

2. The risk that profitability falls short of expectations due to increased competition in the industry.