Incident: The company released the 2024 semi-annual results report. In the first half of 2024, the company achieved revenue of about 13.8 billion yuan, +0.1% year on year, net profit to mother 0.638 billion yuan, +34.1% year on year; net profit without return to mother was 0.64 billion yuan, +61.5% year over year. The company achieved revenue of 13.8 billion yuan in 24Q2, +0.1% year-on-year, +3.9% month-on-month, and realized net profit to mother of 0.33 billion yuan, +20.4% year-on-year.

Comment:

The profit margin repair exceeded expectations, and the gross margin of the security business increased 3.6 pct year over year. The company's overall gross margin for the first half of 2024 was 15.8%, an increase of 2.3 pct over the previous year, and the profitability of the main business continued to increase. The gross profit margin of the automobile safety business was 14.3%, an increase of 3.6 pct over the previous year, leading to an increase in overall gross margin. The gross profit margin of the automotive electronics business remained stable at 19.3%. The company's overall gross profit margin in the 24Q2 quarter was 16.1%, up 2.4 pct year on year and 0.6 pct month-on-month. Mainly due to the continuous release of the company's on-hand orders, various cost reduction and efficiency measures achieved remarkable results, and continued cost optimization, which led to a further increase in overall revenue scale and profitability.

Looking at domestic and foreign regions, the company's domestic gross profit margin was 18.8%, an increase of 2.7 pct over the previous year, and the gross profit margin in foreign regions was 15.0%, an increase of 2.2 pct over the previous year. 24H1 has received a total of 50.4 billion yuan of new orders worldwide over the entire life cycle, serving many leading global manufacturers to provide automotive electronics and automotive safety products.

Automotive electronics business: Vigorous investment in R&D, comprehensive layout in the fields of domain control, cockpit, V2X, etc.

The company focuses on product layouts such as intelligent empathy cockpits, intelligent driving domain controllers, vehicle-road collaboration 5G+C-V2X, and new energy high voltage fast charging, etc., and uses global R&D and production advantages to achieve two-way implementation in China and overseas markets. In the V2X field, the company is one of the world's first leading suppliers to achieve mass production in the 5G vehicle connectivity field. It is in a leading position in the world in market segments such as 5G+V2X modules, integrated digital smart antenna solutions, and “ADAS+V2X integration” in the automotive sector. The company entered the field of vehicle networking in 2016, launched a first-generation intelligent connectivity platform in 2018, achieved global mass production of third-generation connected vehicle products (5G) in 2021, and pioneered ADAS+V2X integration technology solutions. In the past two years, the company has been designated for new intelligent networking projects with a total life cycle value of over 10 billion yuan. At the same time, the company has been deployed in various key fields such as intelligent driving domain controllers, central computing units, middleware and data storage systems for a long time, and can be adapted to customers' different vehicle platforms at different stages of electronic and electrical architectures.

Vehicle safety business: The four major regions of the world have all achieved profits. The automotive safety sector's business in Europe and America continues to improve. The four major global business regions have all achieved profits, and performance growth has been remarkable.

On the technical side, the company is actively promoting active and passive safety products and technologies for future intelligent driving, including folding wire-controlled steering wheels and ceiling-mounted passenger airbags for autonomous driving, flying airbags adapted to the large screens of smart electric vehicles, and smart steering wheels. In terms of production, the first phase of the company's safety business, the new industrial base in Hefei, has been put into operation, and it is expected that the climb will accelerate in the future. At the same time, the company will continue to improve cost competitiveness and enhance safety business performance flexibility through measures such as unified global procurement systems, production automation, global production capacity collaboration, and platform-based modular research and development.

Profit forecast and investment rating: The company's automotive safety business has returned to a profit trajectory, and the automotive electronics business is expected to open up space for medium- and long-term growth. We expect the company's 2024-2026 revenue to be 61.3, 66.2, and 71.5 billion yuan, up 10%, 8% year-on-year, and net profit to mother of 1.41, 1.92, and 2.3 billion yuan, up 30.5%, 35.6%, and 20.2%. Corresponding PE is 14, 11, and 9 times, respectively, maintaining a “buy” rating .

Risk factors: Fluctuations in raw material prices, limited chip supply, fluctuations in sales volume for major customers, and falling short of expectations in the expansion of new automotive electronics businesses.