1H23 performance is in line with our expectations

The company announced 1H23 results: revenue 1.784 billion yuan, year-on-year + 64.16%; return to the mother net profit 258 million yuan, year-on-year + 129.03%; deduction of non-net profit 230 million yuan, year-on-year + 131.20%, the company's performance is in line with our expectations. In a single quarter, 2Q23's revenue was 994 million yuan, year-on-year + 54.94%, month-on-month + 25.86%; net profit returned to its mother was 176 million yuan, + 79.24% year-on-year, and + 115.69% month-on-month.

Trend of development

The downstream demand in special areas has improved, and the core business has supported the rapid growth of the company. During the reporting period, the downstream demand for domestic special equipment improved, the degree of prosperity improved, and the batch production and smooth delivery of the company's new and old projects promoted the rapid growth of domestic business. The company's 1H23 realized domestic market revenue of 1.103 billion yuan, + 100.99% compared with the same period last year. In terms of products, the company's infrared and RF business achieved revenue of 1.478 billion yuan / 244 million yuan respectively, an increase of 61.2% over the same period last year, with a strong growth of the main business.

Profitability ushered in marginal repair, and the cost was well controlled under the scale effect. 1) the company's 1H23 gross profit margin reached 49.79%, year-on-year + 2.60ppt, of which the infrared thermal imaging business gross profit margin reached 52.79%, year-on-year + 3.03ppt, we think it is mainly due to the rapid growth of high gross margin special business; the company's 1H23 net profit rate reached 13.47% year-on-year + 3.23ppt, good cost control during the company period under the scale effect, promoting profitability marginal repair. 2) 1H23 company period expense rate year-on-year-3.24ppt, in which R & D expense rate-4.54ppt, period expense rate improved; 3) the net cash flow of the company's operating activities was-57.86 to 41 million yuan compared with the same period last year, mainly due to the increase in cash paid to employees and employees compared with the previous period; 4) the company's 1H23 inventory increased by 9.50% to 1.638 billion yuan compared with the end of 2022, suggesting that the pace of preparation is still tight.

Continue to expand the business layout, multi-line simultaneously to create a full-spectrum leader. The company is based on the infrared main business, actively expand the business layout of new areas, 1H23 won the bid for BYD far infrared module project, and invested in the establishment of Ruichuang Photon Technology Co., Ltd. and Ruisi Microelectronics Co., Ltd., in infrared, visual products, microwave, laser and other product fields have a number of R & D achievements. We believe that the construction of convertible bond issuance and investment projects is expected to consolidate the company's industrial capacity foundation, and the company is expected to rely on its own infrared imaging advantages to create a full-spectrum leader and further open its own growth space.

Profit forecast and valuation

We expect the proportion of the company's high gross margin special business to decline, so we reduce the company's 2023 Universe net profit of 12.6% to 489 million yuan / 681 million yuan. The company's current share price corresponds to a price-to-earnings ratio of 44.8 times 2024 earnings. Taking into account the long-term growth space and the certainty of special business growth under the company's multi-domain layout, we maintain the outperform industry rating and maintain the target price of 59.26 yuan, corresponding to the price-to-earnings ratio of 54.2 trillion in 2023 / 2024, with a potential increase of 20.9%.

Risk

1) the new order in the special field is not as expected; 2) the product delivery is not as expected.