1H22 performance is lower than we expected.
The company announced 1H22 results: revenue was 3.116 billion yuan, down 24.44% from the same period last year; net profit was-93 million yuan,-118% compared with the same period last year. The main reason was that the fair value of Hongquan held by the company decreased due to market fluctuations (1H22 caused a loss of 261 million yuan), and the performance was lower than we expected due to the repeated impact of the epidemic in the first half of the year. Corresponding to the single quarter of 2Q22, the company achieved operating income of 1.804 billion yuan, down 23.17% from the same period last year, an increase of 37.46% compared with the same period last year, and realized a net profit of 163 million yuan from-256 million yuan of 1Q22.
Trend of development
Affected by the epidemic, the company's revenue declined, but the gross profit margin improved. 1H22 achieved revenue of 3.116 billion yuan, down 24.44% from the same period last year. In terms of business segment, the income of artificial intelligence business was 41 million yuan, an increase of 22.51% over the same period last year. The total revenue of intelligent transportation business (excluding the contribution of video products of subsidiaries) was 857 million yuan, down 45.13% from the same period last year. The revenue of the smart IoT business (including the sales of some IoT products in the field of intelligent transportation) reached 2.24 billion yuan, down 13.07% from the same period last year.
1H22's gross profit margin improved significantly (33.3%), and 2Q22's single-quarter gross profit margin reached 35.3%. We believe that this is mainly due to the increase in the proportion of overseas business with higher gross profit margin and the easing of the shortage of raw materials supply in the upstream.
Policy plus intelligent transportation landing application. On the industry side, we see the policy of car-road coordination. In 2022, Shenzhen issued the first regulations on the management of intelligent network-connected vehicles in China, speeding up the promotion of the application and promotion of intelligent network-connected automobiles. At the same time, it also makes clear the support of road coordination to intelligent network-connected vehicles. In terms of product layout, the company already has a strong roadside video sensing system, and on this basis completed the research and development of 77GHz radar and 80GHz integrated machine and began to deliver it in 2022; at the same time, the company forms a closed loop of vehicle-to-road coordination through its joint venture Lianlu intelligent layout vehicle networking industry. We are optimistic about the implementation of intelligent transportation promoted by the policy, and believe that the company is expected to benefit from the development of the industry by virtue of its sound product layout and project experience.
Channel sinking and overseas expansion contribute to the growth momentum of smart IoT. The company adopts the strategy of city sinking. at present, it has set up 80 secondary offices around the world and opened up markets in more than 330 prefectures, cities and counties across the country. in March 2022, Yushi Technology launched the sub-brand "A Yu" to cooperate with the sinking of channel marketing; at the same time, to promote the sinking and expansion of overseas markets, the company has established 15 international subsidiaries. We are optimistic that the sinking of channels and overseas expansion will contribute to the sustainable development of the company.
Profit forecast and valuation
Considering that the performance affected by the epidemic was lower than expected, we lowered our profit forecast for 2022 and 2023 by 9% to 488 million yuan / 773 million yuan. The current share price corresponds to a price-to-earnings ratio of 34.0 / 21.5 in 2023. We are optimistic about the development prospects brought by the policy increase and channel sinking, maintain the outperformance of the industry rating, but lower the target price by 11% to 12.00 yuan, corresponding to 38.9 times 2022 price-to-earnings ratio and 24.5 times 2023 price-to-earnings ratio, which has 14.3% upside space compared with the current stock price.
Risk
The implementation of intelligent transportation projects and vehicle networking applications is not as expected, and the demand for digital transformation is not as expected.
