Description of the event

The company discloses its 2024 semi-annual report. In the first half of the year, the company achieved operating income of 1.752 billion yuan, up 1.01% year on year; net profit to mother was 75.0554 million yuan, down 9.64% year on year; net profit after deducting non-return to mother was 71.7348 million yuan, up 6.74% year on year. Among them, Q2 achieved revenue of 0.979 billion yuan in a single quarter, up 5.92% year on year and 26.70% month on month; net profit to mother was 37.2279 million yuan, down 13.19% year on year and down 1.58% month on month; net profit without return to mother was 37.251 million yuan, up 0.60% year on year and up 8.02% month on month.

Incident reviews

24H1's auto parts product revenue increased sharply by 14.2%, and wind power roller Q2 improved month-on-month.

(1) 24H1 achieved revenue of 0.934 billion yuan of finished bearings and ferrules, with a revenue contribution of up to 53.3%; (2) due to 24H1 downstream wind power installations falling short of expectations, the impact on 24Q1's revenue was obvious, but Q2 sales and follow-up orders improved markedly; (3) Auto parts revenue of 0.196 billion yuan, up 14.20% year on year, with revenue contribution of 11.2%, of which airbag gas generator parts revenue fell 91.6484 Million yuan, up 32.90% year on year; (4) Thermal management system components revenue was 0.545 billion yuan, up 7.20% year on year, and revenue contribution was 31.1%.

24H1's overall net operating margin was 4.49%, down 0.49pct year on year, mainly due to increased investment in R&D of new products in the current period. 24H1's gross margin was 16.57%, up 1.21pct year on year; net margin was 4.49%, down 0.49pct year on year. The cost rate for the sales period was 11.29%, up 1.33 pct year on year, of which the management cost rate was 5.24%, up 0.21pct; the R&D expense ratio was 3.17%, up 0.71 pct year on year, mainly due to increased R&D investment for new products; the sales expense ratio was 2.46%, up 0.40 pct year on year, mainly due to the merger and acquisition of WJB Holdings and its subsidiaries during the reporting period; the financial expense ratio was 0.42%, up 0.01pct year on year.

The company strengthens research and development of new products, builds specialized screw production workshops, and adjusts the construction schedule of fund-raising projects in a timely manner. (1) Continuously strengthen research and development of new products and technical reserves. In the field of new energy vehicles, a core component for EMB, a ball screw pair for new energy vehicles, has been developed. In the field of humanoid robots, new products such as dexterous miniature screws and linear actuator planetary roller screws have been developed. Among them, planetary roller screws have been sold in small quantities. (2) Increase investment in the development and equipment of screw products. The company built a complete design and development team, and at the same time began to build 2 specialized production workshops for screw products, including a ball screw component and parts workshop for new energy vehicle steering systems and a planetary roller screw component and parts workshop for robot actuators. Among them, the ball screw workshop has a large investment scale. (3) Adjust the construction schedule of fund-raising projects in due course. The focus will be on construction projects related to NEV bearings and components, and the scale and progress of wind power project investment will be controlled appropriately.

The company's market expansion plans are progressing in an orderly manner to accelerate the global layout. The company participated in the public listing of Luoyang Guohong Investment Holding Group Co., Ltd. through the formation of a consortium to transfer 13% of the shares of Luoyang LYC Bearing Co., Ltd., with a transfer ratio of 8.4972%. Luozhu is leading in the domestic field of wind power bearings and shield engine bearings, and has a large demand for high-precision wind power rollers. This investment is conducive to the development of the company's wind power roller product market and technical complementarity between the two sides. For the North American market, the company acquired shares in WJB Holdings in the US and integrated wheel bearing sales channels, which is expected to increase the sales volume of the company's related products in the North American automotive aftermarket.

Investment advice

The company is developing platform-based operations based on the process established in the bearing and ring business. Bearing giants such as Schaeffler and SKF in the traditional main business are expected to maintain steady growth; although 24Q1 wind power rollers fall short of expectations, Q2 and subsequent orders have improved markedly, and the wind power business is expected to reverse the decline and achieve growth in the second half of the year; the company achieved rapid growth in the auto parts field, especially the airbag gas generator parts business, and has successfully achieved import substitution, and is expected to maintain relatively rapid growth in the future; in the field of thermal management, we are optimistic about the broadening and increasing the value of new energy vehicles in the medium to long term; Pillar/ In terms of the ball screw business layout, the company has completed rapid product iteration with the advantages of the entire industry chain and advanced technical reserves. Among them, automobile screws are progressing relatively fast, and screws for humanoid robots still need to pay attention to the progress of downstream customers, and are optimistic about the medium- to long-term growth potential of this business.

We expect the company's net profit for 2024-2026 to be 0.143 billion yuan, 0.184 billion yuan, and 0.243 billion yuan, respectively, up 3.4%, 28.6%, and 32.3% year-on-year, and EPS 0.39 yuan, 0.50 yuan, and 0.66 yuan respectively. According to the closing price on September 13, PE will be 32.1, 24.9, and 18.9 times, respectively, covering the investment rating of “increase holdings -A” for the first time.

Risk warning

Technology R&D, new product development and project investment fall short of expectations: Some of the new products developed by the company, such as screw products, have high technical standards, and the certification cycle for downstream, especially mainstream OEMs, is long. If the certification period is extended due to uncontrollable factors, it will affect the market development progress of new products, or downstream market demand falls short of expectations, thereby affecting the future growth of the company's performance. In addition, new projects and the growth of related industries usually go through a relatively long development cycle. In the early stages of development, large-scale investment is required in technology research and development, process improvement, and equipment selection, while the development of the industry and the company's market development in the middle and late stages will face great uncertainty and risk.

Risk of fluctuations in raw material prices; raw materials such as bearing steel, aluminum, and copper required by the company for production account for a high proportion of production costs. In recent years, there has been a significant increase in raw material prices. If the price of raw materials continues to rise in the future, and the pressure of rising raw material prices cannot be transmitted downstream, it will affect the company's profitability.

Risk of policy changes in the wind power industry: The development of the wind power industry is greatly affected by national policies and industry development policies. Adjustments to relevant policies such as wind power feed-in tariffs, subsidy policy adjustments, industry construction plans, and consumption guarantee mechanisms will all affect the future installed capacity of wind power. If the country's policy to encourage the development of the wind power industry shrinks in the future, it will affect the entire industrial chain. It will also cause the company's orders for wind power roller products to decrease, causing some additional production capacity to be idle, leading to a decline in the gross margin of wind power roller products.

Risk of exchange rate fluctuations: Some of the company's sales with major customers are settled in dollars or euros, and there is a certain amount of foreign currency funds and accounts receivable balances on the books. Fluctuations in the US dollar and euro exchange rates caused by the European geopolitical conflict have a certain impact on the company's financial expenses and total profits. If the RMB appreciates in the future, it will directly affect the sales price and exchange profit and loss of the company's export products, thereby having a certain impact on the market competitiveness and profits of the company's products.