Incident: The company released its 2024 semi-annual report. In the first half of the year, the company achieved revenue of 0.92 billion yuan, a year-on-year increase of 38%, and achieved net profit of 0.15 billion yuan to mother, an increase of 134.9% over the previous year. Among them, the company achieved revenue of 0.53 billion yuan in a single quarter, an increase of 37.7% over the previous quarter, and achieved net profit of 0.098 billion yuan to mother, an increase of 81.3% over the previous quarter.

Revenue and profit hit a new high in a single quarter, and profitability improved markedly from month to month. The company achieved revenue of 0.53 billion yuan and net profit to mother of 0.098 billion yuan in the second quarter. Revenue and profit reached a record high. It mainly benefits from the increase in the downstream digital intelligence penetration rate, as well as the gradual improvement of the competitive landscape. At the same time, the new customers developed by the company in 2023-2024 will continue to contribute new revenue growth. In terms of profitability, the company's gross margin increased 2.2 percentage points month-on-month to 44.11% in the second quarter, and net profit margin increased 4.6 percent month-on-month to 18.5%. In the first half of the year, the company's shares paid 0.015 billion yuan, and royalties accounted for about 42.9% of sales expenses, an increase of about 28% over the previous year, which was lower than the revenue growth rate. Overall cost control was good, and the operating leverage effect was evident.

Continued release of sub-new products promotes product structure optimization and upgrading. The company's new products ESP32-S3, C2 and C3 grew rapidly in the first half of the year, providing a major increase in the company's performance. Along with the improvement of the company's product matrix, new and sub-new products added new functions, forming a differentiated position from the original classic products. At the same time, the company's new products, such as P4, H2, C5 and C6, are being introduced faster, and new and sub-new products will further expand new market growth. Furthermore, the company's overall WiFi chip sales rank fifth in the world, and the number of projects on platforms such as GitHub and YouTube continues to increase.

Acquire M5Stack for collaborative development and strengthen the influence of the developer ecosystem. The company acquired 57.1% of M5Stack Information Technology's shares in M5Stack in May. M5Stack provides customers with a modular and open source platform to build an ecosystem around main control modules. Its products include controllers, cameras, sensors, functional modules and development kits.

The M5Stack modules are all driven by Lexin ESP32 and other series of chips. Currently, the diverse product portfolio includes more than 300 SKUs. The company's chip has strong technical synergy with the M5Stack module and development kit. This acquisition is expected to enhance Lexin's influence in the developer ecosystem and bring more opportunities to the B-side market.

Profit forecasting and investment advice. The company's net profit for 2024-2026 is estimated to be 0.35 billion yuan, 0.43 billion yuan, and 0.52 billion yuan respectively, and EPS will be 3.13 yuan, 3.83 yuan, and 4.59 yuan, respectively. The corresponding dynamic PE is 33 times, 27 times, and 22 times, respectively. The company was given 35 times PE in 2025, corresponding to a target price of 134.05 yuan, maintaining a “buy” rating.

Risk warning: the risk of a sharp reduction in product prices due to increased competition in the industry; the risk of a sharp rise in the purchase price of raw materials; the risk of product development progress falling short of expectations; risk of exchange rate fluctuations, etc.