Haitian International’s (the "Company") 1H2024 interim results overall were line with our expectations. The Company’s revenue recovery slightly exceeded our expectations. However, gross profit margin was below expectations. During 1H2024, the Company’s revenue recovered, driven by a revitalization in demand by daily use products and consumer appliances. Total revenue for 1H2024 was RMB8,018 mn, representing an increase of 25.7% YoY. The Company’s net profit attributable to owners of the Company was RMB1,521 mn, representing an increase of 23.5% YoY. Gross profit margin increased by 0.3 ppt YoY to 32.3% in 1H2024, below our expectation of 33.4%. Our current TP is HK$27.50 and our current Company rating is “Buy”. We will likely maintain or slightly lower the target price in the next company report to reflect margins not meeting expectations.
　　Domestic recovery was mostly driven by an increase in sales for the Company’s smaller Mars series. Total sales volume increased from 18,910 units in 1H2023 to 27,047 units in 1H2024, representing an increase of 43.0% YoY. Revenue from the Mars, Jupiter and Zhafir Electrical series increased to RMB5,170.8 mn, RMB1458.3 mn and RMB1018.3 mn, representing an increase of 34.0%, 6.5% and 25.7%. Number of units sold for the Mars, Jupiter and Zhafir Electrical series increased to 24,115, 840 and 1,955, representing an increase of 45.5%, 14.9% and 34.5%. The Company remains optimistic about market demand for 2H2024, referencing their on-hand orders increasing in August as compared to July.
　　Average selling prices (“ASP”) declined for all of the Company’s products. Prices for the Company’s 3rd generation products declined by 3-8% after the Company released their 5th generation products. The Company is still phasing out 3rd generation products and as a result, ASP will increase in the near future. The ASP of the units decreased from RMB323,000 in 1H2023 to RMB285,000 in 1H2024, representing a YoY decrease of 11.8%. The ASP for the Mars, Jupiter and Zhafir Electrical series declined to RMB214k, RMB1,736k, and RMB521k, representing decreases of 7.9%, 7.3% and 6.6% respectively. We believe that ASP and gross margin will recover over the course of a year as the Company phases out its lower priced 3rd generation products.
　　The Company’s overseas sales growth remained strong, with increases coming from primarily developing markets in SEA, Mexico and South America. Overseas sales growth remained strong, increasing from RMB2,504 mn in 1H2023 to RMB2535 mn in 1H2024, representing an increase of 13.2% YoY. South East Asia accounted for 33.1% of the Company’s overseas revenue in 1H2024, up from 23.4% in 1H2023. Europe experienced a decline in absolute and relative terms, with the market accounting for 32.0% of overseas revenue in 1H2024, down from 38.5% in 1H2023. The Company believes that high shipping rates are still holding back overseas sales, therefore a decline in rates would trigger further expansion in overseas revenue.
　　The Company has invested in three overseas production plants in Serbia, India and Japan. In light of potential increases in tariffs to China, the Company has invested in overseas production facilities to dampen the effects. The Company’s production facilities in India, Serbia and Japan are expected to be operational in 2024, 2025 and 2025, respectively. However, the future productivity of these facilities are uncertain and brings about additional operation risk.
　　Risks: Intensified competition in the industry; geopolitical risk.