The company released its 2024 mid-year report. The company's revenue grew steadily in the first half of the year. The company achieved operating income of 0.216 billion yuan, +11.48% year over year, net profit to mother of 0.023 billion yuan, -4.04% year over year, net profit after deducting 0.022 billion yuan of non-return to mother, -8.32% year over year. The decline in net interest rate was due to the increase in expenses during the company's start-up phase. Looking forward to the future, the consumer electronics industry is recovering and driven by AI, the company has a large space for thermal management products and maintains an increase in holdings rating.

Key points to support ratings

The company's revenue grew steadily in the first half of 2024, and Q2 performance improved month-on-month. With 2024H1, the company achieved operating income of 0.216 billion yuan, +11.48% year on year, net profit of 0.023 billion yuan year on year, -4.04% after deducting net profit of 0.022 billion yuan without return to mother, -8.32% year on year, gross profit margin 25.91%, +1.07pcts year on year, net profit margin 9.68% year on year, and -2.43 pcts year on year. The decline in gross margin was due to the expansion of the company's business scope, and the expenses of subsidiaries newly included in the consolidated statement during the reporting period increased during the start-up phase. 2024Q2, the company achieved operating income of 0.122 billion yuan, +28.13%/month-on-month +28.62%, net profit to mother 0.013 billion yuan, year-on-year +17.81% /month-on-month +32.10%, net net profit 0.012 billion yuan, +12.21% /month-on-month +31.07% month-on-month, gross profit margin 27.26%, year-on-year +2.45pcts/month-on-month, +3.08pcts, net profit margin 9.54%, year-on-year -1.81pcts/month-on-month- 0.32pct Performance continued to improve. Due to the steady development of the company's business in the consumer electronics sector, order demand from major North American customers rose rapidly, and revenue in the automotive sector increased significantly.

Driven by consumer electronics recovery and AI, there is a large market space for thermal management products. Demand in the global consumer electronics market continued to pick up in the first half of 2024. According to Canalys statistics, in 2024 Q1, global smartphone market shipments reached 0.2962 billion units, up 10% year on year, and global desktop and notebook shipments reached 57.2 million units, up 3.2% year on year; in the second quarter of 2024, global smartphone market shipments reached 0.288 billion units, up 12% year on year, and global desktop and notebook shipments reached 62.8 million units, up 3.4% year over year.

The company's thermal management products are mainly used in consumer electronics such as smartphones and laptops. The recovery of the consumer electronics industry and the rapid development of AI technology will bring a broad market space for the company's thermal management products.

The NEV market is growing, driving demand for thermal management products. The company's thermal management products are mainly used in automotive segments such as automotive cockpit electronics and new energy vehicle power batteries. According to statistics from the China Association of Automobile Manufacturers, from January to June 2024, production and sales of new energy vehicles in China completed 4.929 million vehicles and 4.944 million vehicles respectively, with year-on-year increases of 30.1% and 32%, respectively. According to data from the China Automobile Power Battery Industry Innovation Alliance, from January to June 2024, the cumulative load capacity of power batteries in China was 203.3 GWh, an increase of 33.7% over the previous year. The rapid development of new energy vehicles is expected to further bring new market demand.

There were many outward acquisitions in the first half of the year, enriching the company's business areas. In the first half of 2024, the company completed share acquisitions or capital increases in 5 companies, including Dongguan Panshuo, Guangdong Keming, Siquan Electronic Glass, Siquan Metal, and Siquan New Energy. The invested companies' businesses include thermal management materials, liquid silicone for electronic equipment, electronic glass, etc. The companies all held shares with a 51% shareholding ratio, with a total investment amount of 19.62 million yuan. The total investment loss for the first half of the year was 5.04 million yuan. We believe that with the company's management empowerment and technology and customer collaboration, each invested company is expected to increase the company's business synergy in the future and drive the company's overall revenue and profit growth.

valuations

Maintaining the previous profit forecast, we expect the company's net profit to be 0.089/0.115/0.164 billion yuan in 2024-2026, corresponding price-earnings ratio of 41.0/32.0/22.3 times, maintaining an increase in holdings rating.

The main risks faced by ratings

Risk of innovation falling short of expectations, risk of fluctuating raw material prices, risk of relative concentration of customers, and exchange rate risk.