23H1 Gimu's net profit fell 37.26% year on year, maintaining the “buy” rating company's 2023 semi-annual report. The reporting period achieved revenue of 1,355 billion yuan, a year-on-year decline of 8.32%; it achieved net profit of 902317 million yuan, a year-on-year decline of 37.26%. Among them, 23Q2 achieved net profit of 74.68 million yuan, a year-on-year decline of 41.84%. Due to delays in the company's research and production plan targets, adjustments to contract signing plans, and declining gross margin for some products, we lowered the company's profit forecast. The company's net profit for 23-25 is estimated to be 696/9.12/1,140 million yuan (previous value was 892/11.17/1,396 million yuan), corresponding to PE 24/18/15 times, respectively. According to Wind's unanimous expectations, the average PE of the comparable company in 23 years was 37X. Considering the pressure on the company's product gross margin, the company was given PE 32X for 23 years. The corresponding target price was 31.36 yuan (previous value was 40.00 yuan), maintaining the “buy” rating.

Revenue from the defense business declined, and the civilian goods business achieved growth

In the first half of the year, the company's defense-related revenue was 692 million yuan, down 17.00% year on year. Among them, due to factors such as increased industry competition, order fluctuations, and product delivery adjustments, the hydroacoustic electronic defense business achieved revenue of 411 million yuan, a year-on-year decrease of 3.58%; the company's non-defense business achieved a total revenue of 281 million yuan, a year-on-year decrease of 31.04%; the company achieved revenue of 650 million yuan, an increase of 3.56% over the previous year, and the company opened up new customers and markets in oil and gas related equipment, smart cities, smart ocean and other businesses. The company's overall gross margin level in the first half of the year was 32.51%, down 0.59 pct from the same period last year, a slight decline.

Sales expenses have increased, and operating cash flow has declined significantly

The company's sales expenses rate for the first half of the year was 26.04%, an increase of 3.37 pct over the same period last year. Among them, sales expenses were 54.81 million yuan, up 13.49% year on year, accounting for 4.04% of revenue, up 0.77 pct; management expenses were 145 million yuan, up 4.52% year on year, accounting for 10.70% of revenue, up 1.32 pct from the same period last year; R&D expenses were 153 million yuan, up 1.82% year on year, accounting for 11.29% of revenue, up 1.13 pct from the same period last year. The company's operating cash flow for the first half of the year was -239 million yuan, compared to 262 million yuan for the same period last year, mainly due to the decline in operating income and the impact of the settlement cycle.

The development momentum for new products and new markets in the special electronics business was smooth, and the development momentum was strong. In the first half of the year, the company continued to make breakthroughs in the development and operation of new products and new markets. Among them, motion control products continued to focus on projectile projects, developed 8 new customers, and axle angle conversion chips implemented an order for the first time in the defense unmanned vehicle industry. The control field has expanded the market for control products used to control on-board optoelectronic equipment, attracting more than 10 new customers; the high-end power supply business focuses on microchip power products in the fields of drones, missiles, etc., has opened up new markets for drones, space-borne power supply, and cruise missiles, opened up 8 new customers, and implemented application scenarios such as tethered drones for the first time. This series of breakthroughs has provided new impetus for the company's sustainable development in the direction of specialty electronics.

Risk warning: Product quality and production safety risks, and operation management risks caused by many subsidiaries.