Event: the company announced on August 18 that 2023H1 revenue (306 million yuan, + 12.89%), return net profit (40 million yuan,-18.92%), deducted non-return net profit (30 million yuan,-36.07%), gross profit margin (44.77% last 9.83 pcts), net profit rate (13.16% rain 5.16 pcts).

2023Q2 operating income (237 million yuan, + 39.66%), return to the mother net profit (42 million yuan, + 1.8%).

Affected by the increase in operating costs, the net profit decreased significantly.

2023H1, the company achieved steady growth in revenue (306 million yuan, + 12.89%), and the overall business situation was stable. The net profit of homing (40 million yuan,-18.92%), the net profit of deducting non-homing (30 million yuan,-36.07%), the gross profit (44.77% Mahomet 9.83pcts) and the net profit rate (13.16% mai 5.16pcts) all declined to varying degrees. We believe that it is mainly due to many factors, such as the sales product structure, the product localization rate, the improvement of demand-side product price evaluation, and so on.

In a single quarter, the company's 2023Q2 revenue (237 million yuan, + 39.66%) increased rapidly compared with the same period last year, while the net profit of returning to the mother (42 million yuan, + 1.8%) and deducting the net profit of non-return to the mother (39 million yuan-2.67%) were basically the same, and the operating situation improved to some extent compared with the first quarter.

We judge that the company is stepping up efforts to expand the market in multiple application areas downstream of its products, while with the gradual release of traditional and emerging downstream demand, the macro environment is gradually improving, and the company's orders are expected to resume rapid growth. The possibility of a substantial adjustment in the gross profit margin and net profit margin levels that have further improved in the second half of the year is relatively small.

The operating efficiency remains stable, and the fund-raising project is expected to form new business incremental expenses. During the reporting period, the company's three-fee rate (12.19% maxim 0.09pcts) maintained a stable management rate (6.47% maxim 1.10pcts), mainly due to the reduction of share payment fees; the company's sales expenses (17 million yuan, + 27.64%) were mainly due to the increase in after-sales service fees.

In terms of cash flow, the net cash flow from operating activities (- 51 million yuan, + 39.55%) increased year-on-year, mainly due to the increase in rebates and government subsidies received during the reporting period compared with the same period last year. The net cash flow generated by investment activities (- 56 million yuan,-393.16%) decreased significantly, mainly due to the decrease in the amount of financial products purchased compared with the same period last year; the net cash flow generated by fund-raising activities (70 million yuan, + 756.53%) increased significantly, mainly due to the increase in bank loans during the reporting period.

In terms of other financial data, at the end of the reporting period, the company's inventory (315 million yuan, + 4.51%) remained at a high level, with a large increase in raw materials. As the company mainly organizes production and procurement by sales and fixed production, and the full inventory has been calculated, we believe that the company is full of confidence in the rapid growth of demand in the downstream market and is still stepping up stock preparation. At the same time, with the expansion of the company's business scale, accounts receivable (730 million yuan, + 33.65%) has increased significantly. We believe that although large receivables will bring certain financial pressure to the company to a certain extent, however, the company should receive loans from units of major national key sector groups, the customer credit is good, and the probability of bad debts is small.

The original fund-raising projects continued to move forward, with the newly raised investment projects raising 411 million yuan, and the implementation of the "R & D Center upgrading and Construction Project" the company raised funds in the initial public offering of shares in 2021, mainly for the investment needs of three projects. they are the embedded computer expansion project, the R & D center technological transformation project and supplementary current funds, with a net fund of 382 million yuan. Use the raised funds to invest 243 million yuan in the project. Among them, the "R & D center technical transformation project" has reached the scheduled state of use, and the cumulative investment schedule of the embedded computer capacity expansion project is 14.13%, and it is expected to reach the scheduled state of use by the end of 2023. After the embedded computer expansion project reaches production, the annual net profit is expected to be 77 million yuan (accounting for 102.67% of the net profit in 2022). The R & D center technology transformation project will further enhance the company's independent innovation capability and enhance the company's core competitiveness.

In addition, the company announced on July 28, 2023 that the total amount of funds raised to issue convertible corporate bonds to non-specific objects would not exceed 411 million yuan, making up for the insufficient funds raised by the previous IPO, while at the same time, additional equipment investment for future development needs. Through this fund-raising, we will implement the "R & D Center upgrading and Construction Project" and purchase a number of advanced R & D equipment to meet the supporting needs of China's advanced key areas of equipment in the future. According to the company's preliminary calculation, after the completion of the project, the annual operating income will be increased by 560 million yuan / year, the net profit will be 86 million yuan / year (accounting for 103.51% and 114.67% of the annual income in 2022 respectively), and the after-tax internal rate of return is 22.74%. After-tax static investment payback period (including construction period) 6.93, with good economic benefits.

We believe that this financing will help the company, on the basis of optimizing its capital structure, establish production and R & D conditions for future medium-and long-term development, enhance the company's comprehensive competitiveness, sustainable profitability and anti-risk ability, and build one of the important foundations for the company to achieve steady revenue growth in the next few years.

Expand the product category and broaden the core customers

The company has been deeply engaged in the field of embedded computers for more than 20 years. In terms of products and solutions, the company provides various types of products and chain solutions in weapons and equipment, including data acquisition, signal processing, data processing, communication exchange, interface control, image and graphics processing, mass storage, highly reliable power supply and chain solutions.

Under the continuous efforts to open up the market, in addition to the interface control and data processing products, which account for a relatively high proportion of operating income, the business volume of graphics and image and high-speed storage has also gradually grown up, creating new profit points for the company.

At the business level, the company has participated in the development of a variety of key models in airborne, missile and vehicle, and provides a variety of embedded computer solutions, including more than 100, 40 and 30 respectively, which shows the company's strong R & D capability in the field of layout; in the shipborne field, the company has also participated in key models and provided a variety of embedded computer solutions. In addition to the application scenarios that have been fully covered, the company, actively laying out emerging areas and successfully installing them in the field of drones, will strive to break through the on-board embedded computer market and increase its market share. We believe that the company's business, corresponding to the high prosperity of the market sector, is developing rapidly, and the industry ceiling is still improving, which will help to support the "rising tide lifts all boats" and sustained growth of the company's revenue and return net profit scale.

Optimize the 2021 and 2022 equity incentive plan, issue the 2023 stock incentive plan ① 2021, 2022 equity incentive optimization, join the revenue target on April 25, 2023, the company issued an announcement, due to changes in the external economic environment, the company's current operating environment has undergone greater changes than when the incentive plan was formulated, and the achievement of the company-level performance evaluation indicators set in the original incentive plan is greatly affected by the external environment. Before, the evaluation index of the incentive plan is single, and if the company still insists on assessing according to the original performance evaluation index, it is bound to weaken the incentive of the original incentive plan and is not conducive to the long-term development of the company. therefore, it is proposed to optimize the company's 2021 incentive plan, 2022 incentive plan for 2023, 2024 and 2025 company-level performance evaluation targets.

In the adjustment of the equity incentive plan in 2021, the company will achieve a net profit growth rate of not less than 100% or revenue growth rate of not less than 100% in 2023, based on net profit and revenue in 2020, and with net profit growth rate and revenue growth rate as assessment indicators. (the indicators of "net profit" and "net profit growth rate" are based on the net profit belonging to the shareholders of the listed company, and excluding all the impact of share payment fees involved in the company's equity incentive plan and employee stock ownership plan during the period of validity as the basis for calculation.) in the adjustment of the equity incentive plan in 2022, the net profit and revenue in 2021 will be taken as the base, and the examination period will be three fiscal years from 2023 to 2025. Taking the growth rate of net profit and revenue growth rate as the assessment index, the company achieves net profit growth rate of not less than 30%, 50%, 70% or revenue growth rate of not less than 45%, 70%, 95% during the assessment period. According to the equity incentive scheme, the amortization expenses of equity incentives from 2023 to 2025 are 4.9616 million yuan, 3.3405 million yuan and 1.4451 million yuan respectively.

Equity incentive of ② in 2023

The company announced on May 16, 2023 that it intends to grant rights and interests to no more than 255750 shares, accounting for about 0.51% of the total share capital of the company at the time of the announcement of this draft incentive plan. The total number of people to be encouraged under this incentive plan is 84. It accounts for about 14.61% of the total number of employees of the company at the end of March 2023, and the grant price of the shares of this incentive plan is 34.50 yuan per share.

The company-level assessment years of the second category of restricted stocks awarded under this incentive plan are three fiscal years from 2023 to 2025, one for each fiscal year, and the conditions need to be based on the company's net profit or operating income in 2021, the growth rate is not less than 30%, 50%, 70% and 45%, 70%, 95%, respectively. According to the equity incentive scheme, the amortization expenses of equity incentives from 2023 to 2026 are 4.9616 million yuan, 3.3405 million yuan, 1.4451 million yuan and 382600 yuan respectively.

We believe that the optimization of the equity incentive plan in 2021 and 2022 and the new round of stock incentive plan in 2023 reflect the flexibility of the management of the company, and optimize the equity incentive plan timely according to the external environment. It will help the company to improve employee cohesion, team stability, and effectively stimulate the enthusiasm of the management team, so as to improve operational efficiency. It has a positive impact on the long-term improvement of the company's operating performance and intrinsic value.

Investment suggestion

We believe that the company has a considerable number of research projects and orders on hand, and the overall downstream market is full of demand. the specific viewpoints are as follows: ① to promote military information construction and to achieve independent control of weapons and equipment is the key direction of China's national defense construction, while embedded computer, as the basis of intelligence, informatization and modernization of weapons and equipment, will benefit from the golden era of industry development. ② Company has a considerable number of research projects and orders on hand, the industry position is stable, the overall downstream supporting market demand is full, and the number of R & D personnel is growing rapidly, the company is actively expanding the downstream application fields of products, which is expected to improve the corresponding market ceiling of the company's business; the company's business is highly bound with military industrial groups, the downstream demand is full, and the company's orders increase. With the upgrading and upgrading of the military aircraft structure, it will increase the demand for the company's airborne products; at the same time, under the aggravation of the uncertainty of the global situation, on the one hand, it will urge our army to strengthen military training, preparation and actual combat exercises, on the other hand, it will promote the development of the arms trade market, which has given rise to the demand for missiles with precision guidance and strike capabilities, and the market business volume of the company's related supporting equipment will continue to increase in the future. ③ optimizes the 2021 and 2022 equity incentive plans and issues a new round of equity incentives to mobilize the enthusiasm of core employees, reflecting the confidence in the stable development of the company. ④ issues convertible bonds to raise funds to implement the "R & D Center upgrading Project", which will help the company to establish production and R & D conditions for future medium-and long-term development on the basis of optimizing the capital structure, and enhance the company's comprehensive competitiveness, sustainable profitability and anti-risk ability.

Based on the above point of view, we predict that the return net profit of the company in 2023, 2024 and 2025 is 95 million yuan, 106 million yuan and 123 million yuan respectively, and the EPS is 1.26,1.40,1.64. the current stock price is 39.40,35.28,30.26 times respectively.

Risk hint

Macro policy changes, weak overseas markets, lower-than-expected technology research and development, raw material price volatility risk, exchange rate fluctuation risk.