Incidents:

The company announced its semi-annual performance forecast for 2024. It is expected to achieve net profit of 140 million yuan to 170 million yuan in the first half of '24, an increase of 80.87%-119.62% over the previous year; net profit without deduction to mother is expected to be 115 million yuan to 145 million yuan, an increase of 81.83% to 129.26% year on year.

Steady operation in the first half of the year and rapid growth in performance

In the first half of 2024, the company operated steadily, responded positively to national policies to participate in emergency communications construction, and closely followed the “Belt and Road” development strategy to deepen global channels and market layout. 24H1's revenue achieved steady growth, the expense ratio continued to decline during the period, and net profit and net profit after deducting non-net profit grew rapidly. Among them, the dedicated communication business achieved steady growth based on the deepening expansion of domestic and foreign channels, and the EMS business achieved rapid growth thanks to continuous expansion in the fields of new energy and automotive electronics.

In terms of profit, the company grew rapidly in the first half of '24, thanks to revenue growth while controlling expenses.

Looking at the Q2 single quarter, the company's profit fluctuated. It is expected to achieve net profit attributable to mother of 27.74 million yuan to 57.74 million yuan (YoY -79.3% ~ -56.8%), with a median value of 42.74 million yuan (YoY -68.0%). We expect to be mainly affected by exchange rate fluctuations and costs arising from appeals with Motorola regarding commercial secrets and copyright cases. The company lost about 30 million yuan in exchange in the first half of the year, an increase of about 87 million yuan over the same period last year.

Emergency communication benefits, new market opportunities for private networks

Emergency communication is a very important part of the emergency field. Previously, some cities in China had used the 370 MHz band for emergency narrowband wireless communication. As a domestic leader in the field of emergency communications, Hytera is expected to benefit from continued strengthening of emergency communications in the future. China's recent trillion-dollar treasury bond plan is investing in emergency and other fields, which may bring new market opportunities to the construction of emergency communications.

Looking ahead, private network leaders are consolidating basic business, and innovative business companies continue to consolidate their leading position in domestic private networks, launch H series products, be applied in various projects around the world and form large-scale orders, and the commercial industry circuit. At the same time:

① In terms of public specialty integration, the “White Paper on Public Professional Integration” and “Security White Paper” were published overseas, and cooperation with global industry customers and more than 20 operators to build more than 300 public sector integration platforms. Actively increase market share in transportation, energy, industry and commerce industries, and continue to promote digital marketing.

② In terms of NEV electronics, Shenzhen Hynengda Communications Co., Ltd., a wholly-owned subsidiary, signed the “Hytera NEV Electronics Project Strategic Cooperation Framework Agreement” with the Fuzhou Economic and Technological Development Zone Management Committee and Guomin (Fujian) Investment Co., Ltd. The company's new energy and automotive electronics products have been widely used in the world's leading power battery manufacturers, mainstream new energy vehicles and portable energy storage manufacturers, and this cooperation is expected to further promote business development. The company's NEV electronics business is mainly for some of the leading domestic NEV battery manufacturers and automakers. Among them, the main automaker customers include Geely, Guangzhou Automobile, Jinkang, and Xiaopeng.

Profit forecast and investment advice: Due to the impact of the macro environment and motorcycle-related lawsuits, we adjusted the company's 24-25 net profit to be 0.4/0.57 billion yuan (previous value was 0.6/0.8 billion yuan). The estimated net profit to the mother in '26 was 0.75 billion yuan, corresponding to the 24-26 valuation was 19/13/10 times, maintaining the “increase” rating.

Risk warning: Risk of adverse litigation decisions, geopolitical risk, risk of downstream demand falling short of expectations, risk of cost control falling short of expectations, performance forecasts are only preliminary estimates, and specific financial data is based on semi-annual reports, etc.