The company's 22H1 revenue growth rate was -24.4%, and Guimu's net profit growth rate was -118.3%. The company's 202H1 achieved revenue of 3.12 billion yuan, a decrease of 24.4% over the previous year; Guimu's net profit of -90 million, a decrease of 118.3% over the previous year; after deducting Fugimu's net profit of 0.3 million yuan, a decrease of 89.9% over the previous year. Affected by the pandemic and the company's fair value loss in Hongquan IoT, the company's revenue and profit declined significantly. Since the impact of the epidemic exceeded expectations, we lowered the company's EPS in 22-24 to 0.37/0.61/0.75 yuan (previous value: 0.52/0.72/0.87 yuan), which is comparable to the company's 22-year average PE (Wind). Given the company's leading position in intelligent connectivity, intelligent transportation and other fields, we gave the company 32 times PE for 22 years, with a target price of 11.84 yuan (previous value 10.4 yuan), maintaining the purchase rating.

Affected by the epidemic, 22H1's smart transportation and smart IoT business revenue both declined. Looking at the 22H1 revenue composition, 1) smart transportation business (excluding YuTV video products) had revenue of 860 million, a year-on-year decrease of 45.1%. Among them, intercity transportation, urban transportation, and other businesses accounted for 65.1%/33.8%/1.1% of smart transportation revenue; 2) the revenue of the intelligent IoT business (including product sales in the field of smart transportation) was 2.24 billion yuan, a decrease of 13.1% over the previous year; 3) The artificial intelligence business was growing and underdeveloped, continuously expanding beyond the original scenario and creating new scenarios, achieving revenue of 0.4 billion yuan, an increase of 22.5% over the previous year. The epidemic in the first half of the year had a large impact on the construction and inspection of smart transportation projects. At the same time, the impact of the domestic epidemic on the macroeconomy also affected Yushi's product sales to a certain extent. In the first half of the year, UTV's overseas revenue increased 7.36% year over year.

The effect of cost control is expected to be reflected in the second half of the year

The company's 22H1 gross margin was 33.3%, an increase of 2.9 pct over the previous year. Among them, the gross margins of smart transportation and intelligent IoT increased by 1.94/2.64 pct respectively. The 22H1 company's R&D expense rate/management expense rate/sales expense ratio increased by 5.29/1.32/5.08pct, respectively. The company began cost control in Q2, but since there were one-time expenses in Q2, we expect the cost control effect to be reflected in the second half of the year, and the cost rate level for the second half of the year is expected to be lower than the first half of the year.

Looking ahead to the whole year, smart transportation revenue is expected to continue to decline. Intelligent IoT revenue is expected to achieve positive growth. The 22H1 epidemic has had a great impact on the company's smart transportation business, and project revenue is confirmed using a final method, so it is expected that smart transportation revenue will continue to decline throughout the year. In the field of intelligent IoT, domestic business depends largely on macroeconomic recovery. Overseas revenue Q2 will resume rapid growth, and is expected to maintain relatively rapid growth throughout the year. Overall, the smart IoT business is expected to achieve positive revenue growth throughout the year. From a business perspective, thanks to many policies and new transportation infrastructure support, the company's smart transportation orders are expected to maintain a rapid growth trend. In the field of vehicle and road collaboration, a cloud-based integrated car-road collaboration and open platform was developed, radar and LeVision integrated machines were developed; a closed loop of vehicle-side vehicle collaboration was formed through the joint venture Lianlu to intelligently lay out vehicle-side vehicle networks. In the field of intelligent IoT, channel sinking initiatives have continued to be implemented, and the sub-brand “Ah Yu” has been released to lay out county-level markets.

Risk warning: The pandemic has affected project delivery and business opportunity expansion, and government investment has fallen short of expectations.