Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.92 billion yuan, an increase of 37.96% over the previous year; the profit side achieved net profit of 0.152 billion yuan, an increase of 134.85% over the previous year; realized net profit deducted from non-mother 0.146 billion yuan, an increase of 170.12% over the previous year. The Q2 Company achieved operating income of 0.533 billion yuan, an increase of 52.78% year on year; realized net profit of 0.098 billion yuan, an increase of 191.87% year on year; realized net profit deducted from mother 0.098 billion yuan, an increase of 242.78% year on year.

New product release and new customer development drive demand: With the gradual recovery of the downstream AIoT industry, the long-term trend of upgrading terminal products to smart connectivity is clear. The company's next new products, ESP32-S3, C3, and C2, continue to grow rapidly, and demand from new and old customers continues to rise, driving the company's performance to grow rapidly. In addition, mass production of the P4 SOC will target the new edge computing and vision markets. At the same time, new products such as low-power Bluetooth, dual-band WiFi 6, and Matter Overthread are also expected to be released one after another this year, further enriching the matrix and strengthening the new product cycle logic.

Significant increase in profitability: On the gross margin side, overall gross margin increased due to low upstream supply chain costs and early small-batch demand from new customers. In addition, the increase in customer demand from module solution providers, and demand volume for some miniaturized products has led to the optimization of the share of chip products in the company's business structure, raising the overall level of gross margin. The company's gross margin reached 44.11% in 2024 Q2, an increase of 3.14 percentage points over the previous year. On the net interest rate side, along with the rapid growth in the company's revenue scale, the expense ratio was significantly reduced during the period, and the operating leverage effect was prominent. The company's 2024 Q2 net interest rate reached 18.54%, an increase of 8.94 percentage points over the previous year.

Strengthening the B2D2B software and hardware ecological barriers: The company acquired M5 Stack to expand the IoT application solution business including controllers and other hardware modules. Relying on M5Stack, Lexin products will collaborate to develop industrial, educational and developer markets, continue to strengthen the company's hardware product matrix, and with Lexin's industry-leading operating system and perfect development platform tool chain, the B2D2B software and hardware ecological barriers will be further strengthened.

Investment proposal: The company is expected to achieve revenue of 2.053/2.665/3.429 billion yuan and net profit to mother of 0.329/0.453/0.633 billion yuan in 2024-26. Corresponding PE was 36.13/26.23/18.76 times, respectively, maintaining the “gain” rating

Risk warning: technology iteration risk, downstream demand risk, market competition risk, cost increase risk.