Items:

The company announced its semi-annual report of 2021 that its operating income in the first half of 2021 was 251 million yuan, an increase of 26.54 percent over the same period last year, and its net profit was 41.38 million yuan, an increase of 12.15 percent over the same period last year.

Safety point of view:

The growth rate of the company's performance slowed down in the first half of the year, but the proportion of revenue invested in R & D remained at a high level: according to the company announcement, the company achieved operating income of 251 million yuan in the first half of 2021, an increase of 26.54% over the same period last year, and a net profit of 41.38 million yuan, an increase of 12.15%. From a quarterly point of view, the company's revenue growth in the first and second quarters was 104.15% and-12.14% respectively, and the growth rate of home net profit was 92.25% and-21.39% respectively. Due to the decline in the growth rate of heavy truck sales in the second quarter and the tight supply of some raw materials and rising prices, the company's second-quarter performance was under pressure, resulting in a slowdown in the company's performance growth in the first half compared with the first quarter. In the first half of 2021, the company's gross profit margin was 43.57%, down 2.80 percentage points from the same period last year, mainly due to the increase in the purchase price of some raw materials. The expense rate during the company period was 28.87%, a slight increase of 1.60 percentage points over the same period last year. The company continued to increase investment in R & D. in the first half of the year, R & D expenditure was 48.015 million yuan, an increase of 32.46% over the same period last year. The proportion of revenue from R & D expenses was 19.14%, an increase of 0.86% over the same period last year. The company's continuous increase in investment in research and development provides a strong support for the company to keep its core technology ahead of the industry.

The growth rate of the network-connected business is declining, and it is expected that the future policy dividend will be released gradually: in the first half of 2021, the revenue of the company-connected business reached 179 million yuan, an increase of 11.07% over the same period last year, accounting for 9.94% of the revenue compared with the same period last year to 71.35%. In front of the preloading business, the intelligent enhanced driving system achieved revenue of 157 million yuan, an increase of 17.95% over the same period last year, which was lower than that of the same period last year, mainly due to the decline in the growth rate of heavy truck sales in the second quarter and the tight supply of some raw materials. The income of the human-computer interaction terminal was 16.932 million yuan, down 18.60% from the same period last year, mainly due to the iterative upgrading of major customer models and the adjustment of the original product structure. In terms of afterloading business, the revenue of vehicle network terminals reached 5.2282 million yuan, down 29.23% from the same period last year, mainly because the new increment of environmental protection OBD projects of government departments decreased compared with the same period last year. Overall, the company's network-connected business was affected by the tight supply of some raw materials and the slowdown in customer demand downstream, and the growth rate declined in the first half of the year compared with the same period last year In the second half of the year, with the official landing of the sixth national policy, the penetration of T-BOX in heavy, medium and light trucks is expected to continue to improve. The company will rely on the advantage of heavy truck customer base to accelerate the penetration of T-BOX in heavy, medium and light trucks, and the growth rate of T-BOX sales in the second half of the year is expected to increase. At the same time, the new national standard of intelligent driving recorder is expected to be officially released in the second half of the year, the price of driving recorder is expected to increase, and the company's driving recorder product business will accelerate development. Benefiting from the promotion of the policy, the company's network-connected business will resume its rapid development in the future.

The rapid growth of intelligent business will become another growth point of the company's performance: in the first half of 2021, the company's intelligent business (advanced driving assistance system) achieved revenue of 51.1694 million yuan, a year-on-year growth rate of 103.54%. The proportion of revenue increased by 7.72 percentage points to 20.40% over the same period last year. Among them, the growth of front equipment mainly comes from the expansion of advanced auxiliary driving system in the installation of customers and product categories. At present, the company's advanced auxiliary driving system has covered Sany, Shaanxi Automobile, Valin, BeiBen, Geely Commercial vehicles, Jinlong and other main engine factories, such as slag trucks, cement mixers, engineering dump trucks, dangerous chemical trucks, cranes, pump trucks, passenger cars and other vehicles, which not only lays a foundation for the company to further stabilize the advantages of pre-installed customer base, but also broadens the path for the development of intelligent field for the company. In the afterloading market, up to now, more than 50 cities across the country have begun to install vehicle terminal products on the ground, and the company has led and participated in more than 37, with a high market share. In addition, the company has also actively participated in the bidding of newly implemented cities. Some cities have won the bid for big data platform or have begun the stage of prototype supply. In addition, the company has been shortlisted in Guangdong, Henan, Jiangsu and other places of active safety product supplier catalogue, obtained the supply qualification, is expected to start batch supply in the second half of the year. The company's intelligent business performance is good, and will grow into another growth point of the company's performance in the future.

Profit forecast and investment advice: according to the company's semi-annual report for 2021, we adjusted the profit forecast for the company from 2021 to 2023, and the net profit was adjusted to 107 million yuan (122 million yuan), 153 million yuan (166 million yuan) and 213 million yuan (221 million yuan), respectively, and the EPS was 1.07,1.52,2.12 yuan, respectively. The PE corresponding to the closing price on August 20 is about 37.6,26.4,19.0 times, respectively. The company is the forerunner of the commercial vehicle intelligent network connection industry in our country, the network connection service is the cornerstone of the company's business, and the intelligent business is the important strategic direction of the company. According to our estimation, the policies such as the new national standard for automobile driving recorder, the country VI for heavy diesel vehicles, the country IV for non-road mobile machinery, and the installation of active safety intelligent prevention and control equipment for commercial vehicles will bring an order of magnitude market of 10 billion for the intelligent network connection industry of commercial vehicles. As a market leader in commercial vehicle network connection, although the company's performance in the second quarter is under pressure, with the landing of the policy, the company's network connection business will resume rapid development in the future. In addition, the company's intelligent business performance is good, the future will grow into another growth point of the company's performance. We are optimistic about the future development of the company and maintain the "recommended" rating of the company.

Risk tips: (1) the progress of policy landing is not as expected. According to our estimates, the policy will bring a market size of 10 billion yuan to the industry, but if the policy landing progress is not as expected, the market demand may be lower than expected, which will affect the acquisition of orders. (2) the development of corporate networking business is not up to expectations. The company is rich in technical reserves and has obvious advantages in the front customer base of the whole car factory. However, if the company can not continue to maintain the leading edge of networked products and technologies, there is a risk that the company's market share cannot continue to improve or even decline, and the company's networked business may not meet expectations. (3) the development of the company's intelligent business is not up to expectations. Intelligence is the inevitable trend of the future development of commercial vehicles. The company's existing pre-installed customer base has obvious advantages, and it is expected to promote the installation of advanced driving assistance system products in the existing customer base in the future. However, if the company's ADAS products can not continue to break through in technology and performance, then the development of the company's intelligent business in the pre-and post-assembly market is not up to the expected risk.