Matters:

The company released its 2024 semi-annual report. With 2024H1, the company achieved operating income of 0.137 billion yuan, a year-on-year increase of 42.04%, and realized net profit to mother of 56.45 million yuan, an increase of 38.07% over the previous year.

Ping An's point of view:

The company's performance is growing steadily and its profitability is excellent. With 2024H1, the company achieved operating income of 0.137 billion yuan, a year-on-year increase of 42.04%, achieved net profit of 56.45 million yuan, a year-on-year increase of 38.07%, achieved net profit deducted from non-return to mother of 47.49 million yuan, a year-on-year increase of 59.99%, and steady growth in the company's performance. The main reason was the continuous increase in the number of application areas of the company's products during the reporting period, the rolling increase in projects entering the trial production and mass production stage, and the increase in market penetration. During the reporting period, the company's gross profit margin was 81.17%, down ~3.95pct year on year, and still maintained strong profitability. In addition, the net cash flow from the company's operating activities was 90 million yuan, a sharp increase of 12,6717% year over year. The main reason was the significant increase in cash received by the company from selling goods and providing services during the reporting period.

The company attaches importance to research and development resources and continuously consolidates its core competitiveness in technology. During the reporting period, the company invested 53.72 million yuan in R&D, up 61.84% year on year, accounting for 39.12% of revenue, up ~4.79pct year on year. On the one hand, the company continues to increase investment in R&D to continuously improve the performance of existing gyroscopes and accelerometers. On the other hand, it continues to expand the variety of products developed. The research projects cover pressure sensors, automotive-grade high-performance MEMS IMUs suitable for L3+ autonomous driving, automotive-grade functional safety 6-axis MEMS IMU, high-precision MEMS underwater combined navigation systems, etc., and is promoting mass production of the company's R&D projects as soon as possible. In addition, the company has established a R&D team with a relatively complete gradient. By the end of 2024H1, the company had 82 R&D personnel, accounting for 47.40% of the total number of people in the company, and 48 R&D personnel with master's or doctorate degrees, accounting for 58.54% of R&D personnel.

The company's products have a wide range of downstream applications, and more flowering is expected to help the company's performance grow steadily over the long term. The downstream application fields of the company's products include high-reliability, high-end industrial, unmanned systems, etc., including commercial aerospace, commercial navigation, resource exploration, surveying and mapping, industrial Internet of Things, and various unmanned platforms such as drones and unmanned vehicles. The company's products have been widely used in high-reliability and high-end industrial fields, and can be regarded as the company's basic market, and the country's current layout and support for “vehicle-road cloud integration” and “low-altitude economy” will generate new market demand for high-performance MEMS IMUs, which are expected to contribute new growth poles to the company in the long run.

Investment proposal: The company is a leading domestic high-performance MEMS inertial sensor. The performance has reached the international advanced level. Its products such as gyroscopes and accelerometers are powerful, widely used in high-reliability, high-end industrial fields, etc., and the company has an in-depth layout in the field of unmanned systems, which is expected to contribute new growth points to the company in the long run. We maintain the company's previous profit forecast. We expect the company's EPS to be 0.58 yuan, 0.82 yuan, and 1.12 yuan respectively in 2024-2026, and the PE corresponding to the closing price on July 29, 2024 is 50.1X, 35.4X, and 25.9X, respectively. The company has strong product strength, obvious scarcity, and considerable growth potential. We are optimistic about the future development of the company and maintain a “recommended” rating for the company.

Risk warning: 1. The risk of technological product iterations falling short of expectations. The company's high-performance MEMS inertial sensor technology barriers are high. If the company's development of new technology products cannot meet the needs of downstream customers, it may adversely affect the company's performance. 2. The risk that the expansion of new application scenarios falls short of expectations. The company's current revenue sources are mainly in high-reliability and high-end industrial sectors. If the pace of expansion of new application scenarios is slow in the future, it may affect the growth of the company's performance. 3. Market competition risk. The company currently has strong product competitiveness and high gross margin, but other companies in the industry are also making rapid progress. If the company's product iteration speed fails to maintain its competitiveness, it may cause the company's gross margin to decline and profitability to weaken.