Incident: On August 28, 2024, Dechang Co., Ltd. released its 2024 semi-annual report. 2024H1 achieved operating income of 1.862 billion yuan, a year-on-year increase of 38.77%, and realized net profit of 0.207 billion yuan, an increase of 20.78% over the previous year. Excluding the impact of exchange earnings, net profit was 0.189 billion yuan, an increase of 44.0% year on year. Among them, 2024Q2 achieved revenue of 1.038 billion yuan, +33.42% YoY; realized net profit to mother of 0.122 billion yuan, or -5.8% YoY.

The development of multiple categories continues to advance, and EPS motors have entered a period of rapid growth. 2024H1 achieved revenue of 1.862 billion yuan, a year-on-year increase of 38.77%, and Q2 achieved revenue of 1.038 billion yuan, +33.42% year-on-year, continuing the high growth trend.

1) In 2024, the H1 home appliance business achieved revenue of 1.644 billion yuan, +37.0% over the same period. Among them, vacuum cleaners, as the company's core business, achieved revenue of 0.967 billion yuan, an increase of 26.02% over the previous year, further consolidating and improving its market position. Sales of small household appliances such as personal care appliances and environmental cleaning appliances increased both in sales volume and share, generating a total revenue of 0.677 billion yuan, an increase of 56.48% over the previous year, accounting for 41.18% of the home appliance business. The kitchen appliance business is poised to begin, and the gradual mass production of dishwashers has begun, and the development of various categories continues to advance.

2) 2024H1, the auto parts business achieved revenue of 0.148 billion yuan, +68.9% year-on-year, and achieved rapid growth. At present, customers have covered well-known domestic and foreign steering system suppliers such as Nexteer, ZF, JTEGATE, and Schaeffler. 2024H1 added 7 designated projects to the company's auto parts business, with a total sales amount of over 1.5 billion yuan throughout the life cycle.

2024H1 achieved net profit of 0.207 billion yuan to mother, an increase of 20.78% year over year. Net profit excluding exchange earnings was 0.189 billion yuan, an increase of 44.0% year over year. Among them, 2024Q2 achieved net profit of 0.122 billion yuan, -5.8% year-on-year and +42.85% month-on-month.

1) Gross profit margin: 2024Q2, the company's gross margin was 17.91%, +0.58pct; 2) Net profit margin: 2024Q2, the company's net interest rate was 11.74%, -4.89pct; 3) Expense side: 2024Q2, the company's period expense ratio was 4.82%, +6.94pct year on year, -1.65pct month-on-month, sales/management/R&D/finance expense ratios were 0.46%/3.72%/3.36%/-2.71% yoy, +0.49/ -0.32/+0.36/+ 6.42pct. The increase in the financial expense ratio is mainly due to a decrease in exchange earnings.

Investment advice: As one of the leading vacuum cleaner manufacturers in the industry, the company's capacity expansion continues to consolidate its manufacturing scale advantage; at the same time, the EPS automotive motor business market and customers continue to expand, which is expected to achieve accelerated growth and continue to inject momentum into the company's performance growth. We expect the company's net profit to be 0.412/0.51/0.616 billion yuan in 2024-2026, 1.11/1.37/1.65 yuan for EPS, respectively, and the current share price corresponding to PE is 15/12/10 times, respectively. Maintain a “Recommended” rating.

Risk warning: increased industry competition, loss of major customers, fluctuating raw material prices, and risk of exchange rate fluctuations