2Q24: Revenue increased month-on-month, and profitability increased dramatically

The company's 2Q24 achieved revenue of 0.533 billion yuan (yoy: +52.78%, qoq: +37.66%), net profit of 0.098 billion yuan (yoy: +191.87%, qoq: +81.26%), net profit of 0.098 billion yuan (yoy: +242.79%, qoq: +104.08%). The company achieved a high year-on-month increase in revenue in the second quarter, mainly due to the continuous increase in the intelligent penetration rate in smart home/consumer electronics/industrial control fields, and the continuous increase in share due to the continuous improvement of the company's product matrix. The company previously expected net profit to be around 0.065 billion yuan in April-May. The market feared that net profit due to a decline in net profit due to the average decline in June compared to the April/May average, which raised concerns about the sustainability of the 2Q economy, but we expect that the actual demand will remain high, mainly due to increased non-operating expenses (2Q24:4.67 million yuan) and bonus charges. We raised the company's C2/C3/S3 product revenue forecast, gave the net profit of 0.375/0.481/0.629 billion yuan for 24/25/26, and given 34 times 25PE (Wind's consistent expectation of 32x 25PE) and a target price of 145.9 yuan to maintain “increased holdings”, taking into account the company's integrated hardware+cloud platform layout capabilities.

2Q24 review: Overseas demand performed well, and gross margin increased significantly month-on-month. Overall, 1H24 overseas demand grew even more significantly, accounting for 25.8% of overseas revenue. Looking at the product line, the sub-new cost-effective product lines ESP32-C3 and ESP32-C2 and the high-performance product line ESP32-S3 are all in a phase of rapid growth. 2Q24's comprehensive gross margin reached 44.11% (yoy: +3.14pct, qoq: +2.18pct), mainly due to: ① the volume of handheld miniaturized equipment, which favors the direct use of chips, driving the 1H24 chip revenue share to increase 8.2pct to 41.4% year over year; ② due to the low price of raw materials used in the current period, new customers continued to increase (the concentration of the top five customers in 2Q24 fell further to 22.4%), driving 2Q24 chip/module gross margin to increase by 3.36/ 1.38pct to 50.46%/39.48%. Driven by improved gross margin and operating leverage, the company's net profit margin reached 18.54% in 2Q24, an increase of 4.62 pct over the previous month.

2024 outlook: 2H24 revenue is expected to maintain quarter-on-quarter growth. The third quarter is usually the peak consumer electronics season, and we expect the company's 3Q24 revenue to continue to grow month-on-month. In terms of product contributions, the company's sub-new categories (ESP32-S3, C2, and C3) have entered a period of high growth. Other new categories (P4/H4/C5/C6/C61/H2, etc.) will begin to expand in '25, helping the company expand from the IOT WiFi field to new markets such as low-power Bluetooth, SoC, and high-speed WiFi, opening up room for revenue growth. In addition, the company's 2Q24 acquisition of M5Stack, a networked embedded system solution provider, can collaborate with Lexin to strengthen its influence in the developer ecosystem and accelerate the product design process among end customers, ultimately bringing more B-side business opportunities to the company's chip and module business.

Investment suggestion: The target price is 145.9 yuan. Companies that maintain the “increase in holdings” rating will benefit from the increase in the intelligent penetration rate of various terminals. The net profit for 24/25/26 is expected to be 0.375/0.481/0.629 billion yuan, respectively. Considering the company's hardware+cloud platform integrated layout capabilities, 34 times 25PE (Wind unanimously expects 32x 25PE), target price is 145.9 yuan, and the “increase in weight” rating is given.

Risk warning: Downstream demand is weakening, market competition is intensifying, and new product promotion falls short of expectations.