2Q24: Demand for wearable terminals has improved markedly. A new generation of flagship platforms has added contributions, and the company released a 2024 semi-annual performance forecast, and 2Q24 achieved revenue of around 0.878 billion yuan (yoy:

+66.76%, qoq: +34.42%), net profit of about 0.12 billion yuan (yoy: +140.72%, qoq: +336.18%), higher than our previous forecast of 0.75/0.07 billion yuan, after deducting non-return net profit of about 0.103 billion yuan. Demand for 2Q24 wearable devices (including headsets/watches) continued to grow, and the next-generation flagship chip BES2800 achieved mass production and shipment, leading to a high year-on-month increase in revenue. Furthermore, since 2Q24's gross margin and expenses remained stable, the profit side increased significantly more than the revenue side. Considering the continued increase in the company's share in the watch market and the increase in BES2800's sales share driving ASP, we raised the company's 24/25/26 revenue forecast to 3.373/4.421/5.528 billion yuan, and net profit to mother was 0.394/0.6/0.795 billion yuan, respectively. Consider that the company, as a leading global wearable chip company, will give 60 times 24PE (Wind is comparable to the company's unanimous expectation of 57x), with a target price of 196.8 yuan to maintain “increased holdings.”

2Q24 review: Revenue in a single quarter reached a record high, BES2800 chips began to be shipped 2Q24, and the company's revenue in a single quarter reached a record high. Demand for headsets and smart home businesses picked up, watch chips continued to expand new customers (such as Xiaomi, etc.), and market share gradually increased. In addition, the company's next-generation smart wearable chip BES2800 has been mass-produced and shipped, and we expect the current ASP to be greatly improved compared to the BES2700. The next-generation platform was first launched in the new headphone project released by overseas brand customers in the third quarter, leading to a sharp rise in overall volume and price. The net interest rate of 2Q24 increased to 13.7% (yoy: +4.2pct, qoq: +9.5pct), and profit increased significantly year-on-month, mainly due to a significant year-on-year increase in the company's revenue, which brought about a scale effect, and the cost ratio decreased during the period; 2) 2Q24 gross margin increased to around 33.40% month-on-month (yoy: -1.3 pct, qoq: +0.47pct). We expect gross margin in the second half of the year to benefit from further improvements in cost optimization, and the 24-year consolidated gross margin is expected to exceed 34%.

2024 outlook: BES2800 is expected to penetrate more terminals and benefit from long-term AI end-side development. Considering the third quarter as the traditional peak season for consumer electronics, we expect revenue to continue to grow month-on-month. The company's revenue is expected to reach 3.37 billion yuan in 24, mainly due to: 1) the TWS brand continues to replace white cards, the company actively expands overseas markets, and the headphone business is expected to maintain steady growth; 2) The coverage of watch/bracelet customers and projects continues to increase; 3) The market share of the BES2800 flagship chip continues to increase; 3) The flagship chip's image processing capability is expected to reach 3.37 billion yuan Performance in terms of computing power, connection performance, and power consumption has improved significantly. It is expected that more headset/watch/AR projects will be launched, and revenue contributions are expected to accelerate from 3Q24.

Investment advice: The target price is 196.8 yuan. Maintaining the “gain” rating, we are optimistic that the company will maintain steady growth in the TWS market and achieve a rapid increase in its share in the watch market. The continuous iteration of the chip platform is also preparing for long-term AI end-side application implementation. We raised our net profit forecast for 24/25/26 to 0.394/0.6/0.795 billion yuan (previous value: 0.265/0.43/0.587 billion yuan), giving 60 times 24PE (57x the company's unanimous expectation), and a target price of 196.8 yuan, with an “increase in holdings” rating.

Risk warning: Downstream demand weakens, market competition intensifies, core technicians leave their jobs, and shareholders lose their holdings.