Incidents:

The company released the 2023 semi-annual report. In 2023H1, the company achieved operating income of 5 billion yuan, a year-on-year decrease of 21.70%; net profit attributable to the mother - 6.33 billion yuan; net profit after deducting non-return net profit - 7.21 billion yuan.

Bidding for innovation and innovation in the industry has been released intensively, and performance is expected to pick up in the second half of the year. The main reasons for the company's 23H1 revenue decline were: 1) Xinchuang's stock market replacement was nearing completion in the first half of the year, which led to a sharp drop in stock market orders and a slump in demand for new orders. 2) Due to the continuous impact of the international situation, the company's international business orders and revenue have declined. Recently, there has been a recovery trend in the credit innovation market.

In August, China CITIC Bank opened a tender for the 6.5 billion Xinchuang equipment procurement project, of which the ARM chip server budget was 3.401 billion yuan. The company's server products based on Feiteng's next-generation CPU S5000 series platform are being promoted at an accelerated pace. It is expected that the performance of Feiteng's products will be greatly improved, and it has strong competitiveness in the Xinchuang server market. With the recovery of tenders in the Xinchuang market, the company's Xinchuang machines and server products are expected to return to the peak of shipments.

China Electronics and Huawei have established a deep cooperative relationship to jointly build a “Peng Teng” ecosystem. The PKS ecosystem composed of CEC's Feiteng CPU and Kirin OS and Huawei's Kunpeng ecosystem are the two most important ecosystems for Xinchuang in China. Feiteng and Kunpeng CPUs belong to the same ARM instruction set, and have been used in batches in domestic government offices, cloud computing, big data, and information systems in industries such as finance, energy, and rail transit. By building a unified “Penteng” ecosystem, it will simplify the software and hardware adaptation and certification of ecological partners, expand the number of ecological partners of both parties, and promote the wide application of domestic basic software and hardware in various industries. As a core enterprise in the PKS ecosystem, the company is expected to leverage its advantages in manufacturing and channels, deepen cooperation with Huawei, and achieve complementary advantages in the future.

Investment advice: As a national team in China's autonomous computing industry, the company is also an important shareholder of Feiteng, a core domestic CPU company, and is expected to benefit from the accelerated development of Xinchuang. The company's EPS is expected to be 0.13/0.19/0.26 in 2023-2025, respectively, maintaining a “buy” rating.

Risk warning: The promotion of Xinchuang fell short of expectations, product development fell short of expectations, and industry competition intensified.