Incident: The company released a semi-annual performance forecast for 2024. It is expected that in the first half of 2024, the company will achieve operating income of 2.4-2.5 billion yuan, an increase of 123.73%-133.05%; achieve net profit to mother of 0.135-0.155 billion yuan, turning a loss into a profit year over year; and deducting non-net profit of 0.138-0.158 billion yuan, turning a loss into a profit year over year. On a quarterly basis, in 2024, the company is expected to achieve operating income of 1.563-1.663 billion yuan, up 152.70%-168.87% year on year, up 86.60%-98.54% month on month; achieve net profit of 0.121-0.141 billion yuan, turning loss into profit year on year, increasing 762.49% to 905.08% month on month; realize deducted non-net profit of 0.118-0.138 billion yuan, with year-on-year increase of 501.31 billion yuan % -603.31%.

In 2014, H1's performance grew rapidly year on year, and profitability was effectively improved: in 2024, the H1 company's performance achieved rapid year-on-year growth, mainly because in the field of smart security, the iterative products launched by the company once again improved in terms of performance and competitiveness. As market demand picked up, the company's product sales increased significantly, and sales revenue increased significantly; 2. In the smartphone sector, the company's shipments of high-end 50 million pixel products used in flagship mobile phone main cameras, wide-angle, and telephoto lenses have risen sharply, driving a significant increase in the company's revenue in the smartphone sector. As the company's revenue scale increased dramatically, high-speed profitability was effectively improved, and the net profit margin increased significantly.

Technological advantages empower high-end smart security products, and the automotive electronics business is growing strongly: as a leading enterprise in the global smart security CIS, the company continues to develop in the high-end field, and has successfully launched cutting-edge security product portfolios such as Pro Series full performance upgrade series, AI Series advanced imaging series, and SL Series Super Starlight Series to better meet the intelligent stage of security monitoring. The company has also launched several new upgraded AI series CMOS image sensors, which combine the advantages of better night vision full-color imaging, high temperature imaging, and low power consumption performance, which can better empower smart wireless cameras and multi-camera solutions such as home IPC and AIoT terminals, successfully starting the path of iterative upgrading of AI series products. The company's products have been widely used in automotive electronics applications such as intelligent vehicle driving recorders, vehicle surround view and rear-view cameras, driver monitoring systems, and passenger monitoring systems. The company has released more than 10 products for the three major application scenarios of in-vehicle imaging, sensing, and cabin, covering the segmented application requirements of car sensing and imaging with a resolution of 1MP to 8MP. The company's automotive CIS products have been mass-produced by major car manufacturers such as BYD, SAIC, Dongfeng Nissan, Great Wall, Korea's Ssangyong, Zero Sport, Chery, Guangzhou Automobile, Jiangling, and Geely. With the continuous development of intelligent and autonomous vehicles and the continuous increase in the front-loading rate of panoramic surround view, the automotive electronics business will also become a powerful engine for the company's long-term sustainable development.

The CIS mobile phone market has broad prospects, and high-end high-pixel mobile phone products are rapidly being released: According to the TechInsights report, although the global smartphone market experienced a year-on-year decline in 2023, the sales scale of the global smartphone image sensor market increased slightly year-on-year, reaching 14 billion US dollars. In 2023, the overall CIS mobile phone market size stabilized, mobile phone terminals entered the stock market, and high-end smartphone consumers demanded more and more camera shooting performance. Under this trend, CIS, as the core imaging device, has become a key selling point for major mobile phone manufacturers to improve the user experience, and the smartphone CIS market pattern is rapidly changing. Aiming at the high-end flagship product circuit, several XS series high-end products for flagship camera owners and auxiliary cameras (including telephoto and wide-angle) have been shipped on a large scale, opening up a second growth curve for the company's revenue. Aiming at the mainstream smartphone CIS market, the company has carried out in-depth technical cooperation with domestic fabs, using technological innovations such as single-chip integration to launch more cost-effective high-resolution products that better meet the needs of mainstream smartphones. In the first half of 2024, shipments of the company's XS series high-end 50 million pixel products used in flagship mobile phone cameras, wide-angle, and telephoto lenses increased dramatically, driving a significant increase in the company's revenue in the smartphone sector; at the same time, cooperation between the company and customers deepened across the board, and its market share continued to increase. The company continuously improves the dynamic range, noise reduction, and power consumption optimization of the product, further improves the differentiated product matrix, brings excellent imaging performance to smartphone imaging systems, and continuously enhances the company's market position and brand influence in the smartphone field.

Lowering the profit forecast and maintaining the “buy” rating: The company's smartphone business continues to develop. Smartphone CIS products have covered the current mainstream demand in the mobile phone market, and the product resolution ranges from 0.8 million pixels to 50 million pixels. We believe that as the smartphone market continues to shift to the high-end industry chain, with the support of AI phones, the demand for high-end high-pixel products is expected to continue to grow; we are optimistic about the company's layout in the CIS, and the rapid release of high-end high-pixel mobile phones is expected to continue to contribute to the company's performance growth momentum. However, considering the impact of equity incentive expenses, we lowered our profit forecast. We expect the company's net profit to be 0.304 billion yuan, 0.482 billion yuan, and 0.682 billion yuan, respectively In billion yuan, EPS is 0.76 yuan, 1.20 yuan, and 1.71 yuan respectively, and the corresponding PE is 71X, 45X, and 32X, respectively.

Risk warning: risk of exchange rate fluctuations, downstream demand recovery falling short of expectations, risk of technological innovation, risk of market competition.