Matters:

The company released its 2024 mid-year report, achieving revenue of 1.39 billion yuan, +77.2%; achieving net profit of 0.18 billion yuan, +35.4% year over year; looking at the split quarter, the company's 24Q2 single quarter revenue was 0.87 billion yuan, +99.8% year over year; net profit to mother 0.13 billion yuan, +31.7% year over year.

Commentary:

24H1 revenue grew rapidly, and various categories performed well. The company's 24H1 revenue increased sharply by 77.2% year-on-year. Looking at product categories, electric golf carts, all-terrain vehicles, and electric bicycles performed well. Specifically: 1) Electric golf carts contributed to core growth. 24H1's electric golf carts achieved revenue of 0.37 billion yuan, an increase of 1200.8% over the previous year. During the reporting period, the company added more than 60 new dealers, cumulatively more than 120 electric golf car dealers, and its own brand DENAGO launched a variety of new products, including the Zenseater.

2) The non-US market for all-terrain vehicles is growing rapidly, and the product line continues to expand. 24H1's all-terrain vehicles achieved revenue of 0.37 billion yuan, an increase of 47.3% over the previous year. Among them, the North American market recovered steadily, and the non-US market performance reached a record high.

The company continued to expand its all-terrain vehicle product line, developing 300cc and 550cc products during the reporting period, of which 300cc new products sold more than 1,000 units. 3) E-bike revenue increased rapidly due to channel expansion. 24H1's electric bicycles achieved revenue of 0.13 billion yuan, an increase of 110% over the previous year. During the reporting period, the company continued to expand its distribution channels. The number of high-end dealers exceeded 300, and brands from different channels were differentiated and complementary, giving full play to the cost performance advantage.

24Q2 gross margin declined year on year, and the ratio of three expenses for sales management and R&D narrowed year on year. The company achieved net profit of 0.13 billion yuan to mother in 24Q2, +31.7% year-on-year; the company's 24Q2 gross margin was 35%, a year-on-year decrease of 6.2 pcts. We expect this is mainly due to changes in product structure. The 24Q2 company's expense ratio was +0.9.pct year over year. Among them, the three cost rates for sales, management, and R&D were -7.8, -2.1, and -2.2 pct year over year, respectively, and the financial expenses ratio increased sharply by 13 pcts year over year, mainly due to exchange effects. 24Q2 finally achieved a net interest rate of 15.1% to mother, a year-on-year decrease of 7.8 pct. We expect the share of revenue of own-brand electric golf carts to continue to increase, and the company's profitability is expected to recover and improve in the coming quarters.

Trade risks are disrupting in the short term, and overseas production capacity is being deployed at an accelerated pace. The US Low Speed Electric Vehicle Alliance submitted an application to the US Department of Commerce to launch a “double reverse” investigation against Chinese electric golf cart companies. The company's operations grew steadily, but the valuation was disrupted in the short term by trade risks. During the reporting period, the company accelerated the “Made in North America +” strategy. The overseas production capacity layout progressed rapidly, the Vietnamese factory's investment license and business license were successfully processed, and small-batch trial production has already begun. At the same time, the three major electric golf cart manufacturing bases in the US are progressing smoothly, and local manufacturing in the US will gradually be realized in the future.

Investment suggestions: The company is a leading company in recreational riding products, with excellent profitability; the core competitive advantages at both ends of the smile curve can last for a long time and continue to be consolidated as the company grows; electric golf carts have begun to be fully realized. We adjusted the company's net profit forecast for 24/25/26 to 0.4/0.54/0.69 billion yuan (previous value 0.37/0.51/0.65 billion yuan), and the corresponding PE for 24-26 was 14/10/8 times, respectively. However, the short-term valuation of the company was affected by trade risks, so we adjusted the target price of 62 yuan with reference to absolute valuation to maintain the “recommended” rating.

Risk warning: trade policy risks, new product results falling short of expectations, terminal demand falling short of expectations.