Steady revenue growth, exchange losses and lithium batteries are dragging down performance

The company released its 24-year semi-annual report. 24H1 achieved operating income of 5.494 billion yuan, +15.74% year on year, realized net profit of 0.454 billion yuan, net profit of 0.4 billion yuan after year, net profit without return to mother, -66.95% year-on-year, 24Q2 single quarter revenue and net profit to mother were 2.932 and 0.143 billion yuan respectively, +30.0% and -83.48% year-on-year respectively. Ceramic machinery business orders grew rapidly in the first half of the year, and the revenue scale continued. Despite the expansion, profits were under significant pressure. On the one hand, due to the depreciation of the African currency, the company's exchange losses increased by 0.18 billion yuan year on year. On the other hand, the price of lithium carbonate continued to be under pressure, as well as tax rate adjustments and retroactive adjustments to the previous brine purchase amount, causing Lanke Lithium's 24H1 operating costs to increase by about 0.4 billion yuan, reducing its contribution to the company's net profit by more than 0.7 billion yuan year on year. From a fundamental perspective, the company's main pottery business is growing well, and the overseas market expansion process is still accelerating.

The main building materials machinery industry is growing steadily, and overseas business expansion is accelerating

By business, 24H1's building materials machinery, overseas ceramics, and lithium battery materials business achieved revenue of 2.71, 1.98, and 0.3 billion yuan respectively, with gross margins of 24.9%, 30.9%, and 0.4% year-on-year respectively, and -2.5, -12.7, and -3.3 pct, respectively. The gross margin of the overseas building materials business was under significant pressure, but production remained steady. 24H1 produced ceramic tiles 0.084 billion square meters, a year-on-year increase of 20%. In terms of lithium carbonate, 24H1 Lanke Lithium produces about 0.0189 million tons of lithium carbonate and sells about 0.0203 million tons, achieving operating income of 1.685 billion yuan, contributing 0.138 billion yuan to KEDA's net profit. From a regional perspective, the company's overseas business expansion has accelerated. 24H1's overseas business revenue accounts for more than 60%, and overseas orders for ceramic machinery account for more than 60%.

Gross profit margins are under pressure, and foreign exchange losses have led to rising financial expenses

24H1's comprehensive gross margin was 25.6%, -6.13pct year on year, and the cost ratio for the period was 18.8%, +4.19pct year on year. Among them, sales, management, R&D, and financial expense ratios were -0.4, +0.47, +0.12, and +4.0pct, respectively. The financial expense ratio increased mainly due to an increase of 0.18 billion yuan in exchange losses and a 0.03 billion yuan year-on-year increase in net interest expenses. Under the combined influence, the net interest rate was 10.09%, -25.81 pct year over year.

In terms of cash flow, the net CFO of 24H1 was 0.258 billion yuan, with a year-on-year increase of 0.306 billion yuan.

There is broad room for medium- to long-term growth, maintaining a “buy” rating

As of the close of trading on August 21, the company's PE (TTM) was 10.1 times, and the dividend rate (TTM) was 4.83%. We believe that the decline in lithium battery profit share is also beneficial to the company's main business value. Considering the gradual intensification of competition in the African ceramic tile market over the past 24 years, and Lanke Lithium's supplementary resource tax and retroactive adjustment of brine procurement prices, the performance contribution fell short of expectations, we lowered the company's 24-26 net profit forecast to 1.41, 1.66, and 1.94 billion yuan (previous values were 1.74, 1.93) , 2.24 billion yuan), maintaining a “buy” rating.

Risk warning: Exchange rates fluctuate greatly, overseas ceramic tile competition intensified, lithium carbonate prices fell sharply, and production capacity expansion fell short of expectations.