Core views:

Benefiting from new energy and intelligence for automobiles, 23H1's revenue was +26.5% year-on-year. According to financial reports, 23H1 achieved revenue of 2.63 billion yuan, +26.5% year on year; net profit not attributable to income was 150 million yuan, +1.3% year on year. The rapid increase in revenue mainly benefited from the rapid increase in NEV sales volume. According to statistics from the China Automobile Association, 23H1 NEV sales volume increased to +44.1% year-on-year, and the penetration rate increased to 28.3%. By business, new energy/body systems/safety systems/power systems/intelligent driving networking/cloud services/service revenue and other realized revenue was 12.5/4.2/3.9/2.2/2.0/0.9/60 million yuan, respectively, 58.1%/-3.2%/43.1%/41.0%/117.7%/-71.1%/95.4%, respectively.

R&D investment continues to be high, and profitability is under pressure in the short term. According to financial reports, 23H1 achieved gross margin of 20.6%, year-on-year -1.0pct/month-on-month -0.9 pct, net margin of 5.9%, year-over-year -1.5pct/-3.6pct. The year-on-year decline in gross margin was mainly due to revenue restructuring; the cost ratio for the period was 14.2%, year-on-year +1.4pct/+3.0pct, of which the sales/management (including R&D) /financial expense ratio was 2.0%/10.4%/1.8%, year-on-year, 0.3/+0.7/+1.0pct. The company increased investment in intelligent R&D, expanded personnel recruitment, and increased capital expenditure on software and equipment, increasing the R&D cost rate to 8.9%, +1.8 pct over the same period last year.

New energy and intelligence have gone hand in hand, and product volume and price have risen sharply. 23H1 launched a MADC3.5 domain controller for L2+ and L2++ level intelligent driving scenarios to achieve a comprehensive upgrade of functional safety, information security, and cabin driving. Additionally, the company has introduced two high-end front and rear area controller solutions based on Infineon's multi-core processors.

Profit prediction and investment advice: The company is positioned as an asset-light, research-intensive automotive electronics solution provider, benefiting from new energy & intelligence for automobiles. Product upgrades+category expansion drive continuous business growth. The company's EPS for 23-25 is expected to be 0.33/0.41/0.50 yuan/share. Considering the company's unique business model, historical valuation and comparable valuation, it will be given 15xPE in '23, corresponding to HK$5.45 per share (exchange rate 1 HKD = 0.92 RMB), covered for the first time, and given a “buy” rating.

Risk warning. Macroeconomics falls short of expectations; raw material prices fluctuate; technology iteration risks.