Incidents:

The company released its semi-annual report on August 30, 2021. It achieved operating income of 521 million yuan in the first half of the year, an increase of 58.43% over the previous year; net profit attributable to owners of the parent company was 32.9437 million yuan, a decrease of 34.12% over the previous year; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss was 269.447 million yuan, a decrease of 40.29% over the previous year; basic earnings per share of 0.22 yuan, a decrease of 38.89% over the previous year.

Key points of investment:

Revenue increased but net profit declined. The focus on increasing R&D expenses boosting the company's revenue growth in the medium to long term was mainly due to increased sales of next-generation Wi-Fi chip products when the industry was in short supply; the introduction of next-generation Bluetooth audio TWS products into customer sales gradually climbed; and ETC front-mounted chips achieved mass production and sales in the first half of the year. The decline in net profit was mainly due to 1) the increase in R&D expenses. R&D investment increased by more than 45 million yuan over the same period of the previous year, or more than 110%; 2) the increase in sales and management expenses, a total increase of nearly 1,000 yuan over the same period last year, or 43%; 3) the impact of exchange rate fluctuations, and the company's financial expenses due to exchange gains and losses increased by about 8 million yuan compared to the same period last year.

Optimistic about the month-on-month improvement in performance brought about by the company's new product iterations

The company continued to upgrade and iterate on various series of products in the first half of the year. The company launched the world's first IoT chip that supports Wi-Fi 6. At the same time, the 28nm TWS Bluetooth headphone chip has been mass-produced, and the development of a new generation of 22nm TWS headphone chip has been completed. As the company continues to increase its investment in the IoT field, the sales revenue and gross margin of the company's products are expected to continue to increase, and performance will continue to improve month-on-month.

Profit forecasting

Since the increase in the company's R&D and other expenses in the first half of the year had an impact on the company's performance in the first half of the year, we revised the company's profit forecast. It is estimated that the company's net profit to the mother in 21-23 is 1.75, 266, and 321 million yuan. We are still optimistic that the company's performance will continue to pick up month-on-month after iteration of new products, maintaining the “buy” rating.

Risk warning

Shipments fell short of expectations and costs rose sharply due to tight wafer foundry; the introduction of TWS brand customers fell short of expectations; customer demand for Wi-Fi chips fell short of expectations; and the entry of new players led to a sharp drop in product prices.