Leading private military simulation manufacturer maintains “buy” rating

We maintain the company's net profit forecast for 2023-2025 at 185, 2.48, and 320 million yuan, EPS at 1.17, 1.57, and 2.02 yuan/share respectively, and the current stock price corresponding to PE is 28.3, 21.1, and 16.4 times, respectively. Considering that AI is expected to improve the company's decision-making intelligence in the field of military simulation, it is expected to help the company open up military entertainment business space and maintain a “buy” rating.

The performance slightly exceeded expectations, and the revenue structure improved markedly

(1) In the first half of 2023, the company achieved operating income of 189 million yuan, an increase of 23.51% over the previous year; realized net profit of 309.13,800 yuan, a year-on-year loss decrease of 17.35%. Among them, Q2 achieved revenue of 169 million yuan in a single quarter, or 23.34% of the same period; net profit of 2,377 million yuan was realized, turning a loss into a profit from the previous year, and the performance slightly exceeded expectations.

By product, the company's revenue structure improved markedly. In the first half of the year, technology development revenue was 128 million yuan, up 76.29% year on year; hardware product revenue was 245.23,900 yuan, up 78.96% year on year.

(2) The company's gross sales margin in the first half of the year was 59.04%, an increase of 7.68 percentage points over the previous year, mainly due to the increase in the share of technology development revenue with higher gross margin. The company's sales expenses rate was 15.24%, down 0.31 percentage points from the previous year; the management expenses rate was 26.5%, which was basically the same as the previous year; and the R&D expenses rate was 51.76%, up 10.52 percentage points from the previous year.

(3) Furthermore, the company's inventory at the end of the second quarter was 298 million yuan, up 44.3% from the end of 2022. The main reason was the increase in inventory balance due to a combination of reasons such as the expansion of the company's business scale, the lengthening of the implementation cycle of individual projects, and the increase in hardware procurement. At the same time, the company's advance payment at the end of the quarter was 467.419 million yuan, an increase of 150.8% over the end of 2022, mainly due to the high payment amount required for project progress. As can be seen, the company has relatively sufficient orders on hand.

Empowering military simulation business with AI is expected to greatly enhance the degree of intelligence in military decision-making. The company empowers military simulation business with AI. It has launched a full-stack military intelligence decision solution and AIStudio military intelligence model training platform, integrating rule driving into data drive, moving from single intelligence to hybrid intelligence, providing overall solutions for the whole process of perceptual intelligence, cognitive intelligence, decision intelligence and operational intelligence, supporting program planning and verification, command assistance, intelligent upgrading of weapons and equipment, and development of unmanned equipment.

Risk warning: risk of brain drain; increased risk of market competition.