Incidents:

The company released its semi-annual report: the company's revenue for the half-year of 2023 was 1,844 billion yuan, down 19.40% from the previous year; net profit of attributed/non-attributable net profit was 2.03/171 million yuan, respectively, a year-on-year decline of 40.82% /45 million yuan.

34% Among them, in the Q2 quarter, the company achieved revenue of 972 million yuan, a year-on-year decrease of 2.35%; net profit attributed/non-attributable net profit was 123/128 million yuan, respectively, a year-on-year decline of 34.53%/28.64%, respectively.

Innovative consumer electronics products dragged down performance. Domestic business achieved steady growth. Looking at categories, 23H1 achieved revenue of 5.15/6.27/2.60/2.19/68 million yuan, respectively, compared to the same period in 2022, with revenue of 5.15/6.27/2.60/2.19/68 billion yuan, an increase or decrease of -58.82%/+30.41%/+64.91%/+44.31%/+12.53%.

By region, 23H1 achieved foreign and domestic revenue of 1,500/344 million yuan respectively, a year-on-year change of -25.03%/+19.93%, respectively. In the face of weak overseas demand, the country achieved steady growth.

Gross margin improved year over year, R&D investment trend did not change

In terms of profitability, 2023H1's gross margine/net profit margin was 30.53%/11.03%, respectively, with year-on-year changes of +3.23/-3.99pct. In terms of expenses during the period, 23H1's sales/management/finance/R&D rates were 2.08%/7.00%/-1.83%/9.49%, respectively, with a year-on-year increase and decrease of 0.54/1.25/3.13/1.69 pct.; Among them, the increase in financial rates was mainly due to a decrease in net income from exchange rate fluctuations in the current period; R&D companies continued to introduce talents and increase investment in new technologies, products and processes.

The UDM business has a strong foundation, and multiple business segments continue to be integrated at the strategic level of development. The company continues to consolidate the core competitiveness of the UDM business model with R&D as the core. On the one hand, it continues to deepen the big whale swarm strategy, actively guarantee order delivery, speed up project R&D and mass production, and carry out cost reduction and efficiency measures; on the other hand, it vigorously promotes GMP plans, actively cooperates with overseas design companies, builds a global resource pool, and has made progress and breakthroughs in international customer reserves. Looking at business segments, the company insists on multi-sector business integration and development, and is steadily promoting multi-point development in fields such as automotive electronics, health environment, overall solutions for intelligent manufacturing, and smart homes.

Investment advice and profit forecasting

With the advantages of the unique UDM business model, the company has established comprehensive and in-depth strategic partnerships with many internationally renowned manufacturers such as Cricut and Logitech. We are optimistic about the company's steady development in the medium to long term. We expect the company to achieve revenue of 46.71/57.03/7.348 billion yuan in 2023-2025, respectively, net profit of 667/8.16/1,082 million yuan, EPS of 0.85/1.05/1.39 yuan/share, corresponding PE of 19.73/16.12/12.17 times, maintaining the “buy” rating.

Risk warning

Risk of exchange rate fluctuations, risk of trade friction, shortage of raw materials supply, and risk of price fluctuations