Summary of the announcement: the company released its semi-annual report for 2021, with revenue of 251 million yuan, an increase of 26.54% over the same period last year, a net profit of 41.3801 million yuan belonging to the parent company, an increase of 12.15% over the same period last year, and a net profit of 35.9601 million yuan after deducting non-recurrent profits and losses, an increase of 4.67% over the same period last year. Share payment fees totaled 4.8597 million yuan in the first half Excluding the influence of share payment, the net profit belongs to the shareholders of the listed company is 46.2398 million yuan.

The performance is growing steadily and the intelligent business is developing at a high speed. The company's performance increased steadily in the first half of 2021, with a comprehensive gross profit margin of 43.57%, down 2.80% from the same period last year, mainly due to the increase in the price of raw materials such as chips. Among them, 2021Q2 performance declined, with revenue of 116 million yuan per quarter, down 12.14% from the same period last year, down 13.64% from the previous month, and net profit of 20 million yuan from the same period last year, down 21.39% from the same period last year and slightly lower than the previous year. In terms of business, 2021H1's intelligent enhanced driving system achieved revenue of 157 million yuan, an increase of 17.95% over the same period last year. The revenue of the advanced assisted driving system was 51 million yuan, an increase of 103.54% over the same period last year, the revenue of human-computer interaction terminals was 17 million yuan, down 18.60% from the same period last year, the revenue of smart city business was 14 million, up 53.75% from the same period last year, and the revenue of vehicle network terminals was 5 million yuan, down 29.23% from the same period last year.

The poor performance in the second quarter was mainly due to the decline in vehicle sales of downstream customers, with commercial vehicle Q2 sales of 147. 5% in a single quarter.

570000 vehicles, down 7.18% from the same period last year, of which, affected by factors such as the slowdown in macroeconomic growth, the decline in the prosperity of the logistics industry, low freight rates and saturated capacity, and the industry implementing the sixth national emission standards, the market demand for heavy trucks began to weaken in April, with sales of 19.3,16.2 and 157700 vehicles respectively in April and June, up 0.1 per cent,-9.5 per cent and-7.0 per cent year-on-year. The cooling of the commercial vehicle market has led to greater pressure on the company's preloading business. H1 revenue is 201 million, a year-on-year growth rate of 17.95%, which is lower than the overall level of the company. The revenue of afterloading products was 29 million, an increase of 82.25% over the same period last year, mainly due to the fact that the slag truck business gradually got rid of the impact of the epidemic and entered several cities to start supplying goods, and the revenue of afterloading advanced driving assistance system was 24.08 million yuan, an increase of 177% over the same period last year. The company's intelligent business achieved revenue of 51 million yuan, an increase of 103.54% over the same period last year, while revenue of networked business was 179 million yuan, an increase of 11.07% over the same period last year. The growth rate of intelligent business was higher than that of networked business, and the demand of front and rear customers for intelligent commercial vehicles gradually increased.

We will continue to increase investment in research and development and speed up technological innovation and product iteration. From the expense point of view, the company's expenses during the first half of 2021 were 72.427 million yuan, an increase of 33.97% over the same period last year, and the expense rate was 28.87%, an increase in 1.6pct over the same period last year. The company adheres to the independent R & D strategy and builds a high-quality R & D team. The 2021H1 R & D expenditure is 48.015 million yuan, an increase of 32.46% over the same period last year, and the R & D expenditure rate is 19.14%, an increase of 0.86pct over the same period last year. The number of R & D personnel increased from 289 in the same period last year to 377, accounting for 58.41% of the total staff. At present, the company has R & D layout in the fields of 5G-V2X, high-precision positioning, AEB, low-speed unmanned vehicles, AI algorithms and controllers. In addition to daily product development, the company's R & D center undertakes the important work of domestic replacement and modification of chip schemes, and the research institute has made breakthroughs in the field of multi-machine cooperation and low-cost integrated navigation. Among them, multi-machine cooperative technology is mainly used in the field of building construction. Multi-machine cooperative terminals equipped with Mesh networking technology can be installed on various types of cranes to achieve data synchronization. One person controls multiple machines to work together and hoist jointly. Compared with the terminals equipped with C-V2X and ZigBee technology, the cost is relatively controllable and the scope of application is more extensive. The next step of this technology will be to realize product application. The integrated navigation technology developed by the company for high-level intelligent network-connected vehicles is based on inertial navigation, map matching and visual recognition technology as an auxiliary correction of deviation, strengthening short-term stability. It is suitable for areas that can not be covered by traditional navigation, such as the interior of the tunnel and high-rise buildings. at present, this technology has completed model construction, prototype design and field road test, and the next step will enter the real vehicle testing stage.

Set up Beijing Weibo to enter the intelligent controller, policy-driven industry development. In terms of intelligent business, the company added customers such as Jinlong, BeiBen and Geely commercial vehicles in front of the ADAS system, and the application models expanded from slag trucks to new categories such as cement mixers, engineering dump trucks, passenger cars, and so on. In the afterloading market, the company has obtained the qualification to supply active safety products in Guangdong, Henan, Jiangsu and other places, and is expected to start bulk supply in the second half of the year. With the promotion of local active safety policies, the company has now obtained the qualification to supply active safety products in Guangdong, Henan and Jiangsu provinces. This market segment is expected to become a new growth point of the company's intelligent business. With the development of intelligent network technology and the promotion of national policy, the penetration of ADAS system in commercial vehicles will be further improved. The company established Beijing Yubo Automotive Control system Co., Ltd. in February 2021, which is mainly engaged in the research, development, production and sales of automobile intelligent controllers. Since its establishment, Beijing Weibo has signed technology development agreements with a number of mainframe factories, supplying products of some companies have passed verification and achieved mass production, among which the proportion in Sinotruk has room for further improvement, and the company's projects are saturated at present. Strive to cover a full range of controllers and domain controller products in the future. The improvement of the permeability of new energy vehicles will further increase the proportion of automotive electronics in the vehicle cost. at present, the automotive intelligent controller market is dominated by mainland, Bosch and other foreign manufacturers, and there is more room for domestic substitution. In terms of networked business, the company has established business relations with four of the top five heavy truck vehicle factories in China, and the industry has a solid position. in the second half of the year, with the official landing of the national six policy, the penetration rate of T-BOX products in the heavy, medium and light preloading market is expected to increase, and the new national standard for driving recorder is expected to be released in the second half of the year, which will promote the unit price of driving recorder products and accelerate the development of the company's intelligent driving system.

Investment suggestion: Hongquan Wushu is the leading manufacturer of domestic commercial vehicle intelligent network couplet, which has formed obvious technology and customer advantages in the field of intelligent network couplet. The company promotes the commercial vehicle ADAS system and occupies a large share of the slag car segment market. In the future, with the development of 5G application and intelligent network connection technology, the introduction and promotion of new national standards, active security and other related policies, the penetration of vehicle networking in commercial vehicles will be further improved, and we believe that the company's business has new room for growth. considering that the sales volume of the mainframe factory is lower than expected, we adjust the company's profit forecast. It is estimated that the company's net profit in 2021-2023 is 108 million / 154 million / 202 million (the original forecast is 124 million / 168 million / 218 million), and the EPS is 1.08 / 1.54 / 2.02 yuan respectively (the original forecast is 1.24 / 1.68 / 2.18 yuan), maintaining the "buy" investment rating.

Risk tips: downstream mainframe factory sales decline; raw material shortage and price rise; policy implementation is not as strong as expected; industry competition intensifies