Incident: On the evening of August 7, Beijing time, Huazu Navigation released its 2024 semi-annual report. In 2014, H1 achieved operating income of 1.484 billion yuan, an increase of 22.86% over the previous year, and achieved a net profit of 0.251 billion yuan to mother, an increase of 42.96% over the previous year.

Major businesses have fully blossomed, and the autonomous driving business has ushered in catalysis. The company's construction and infrastructure business achieved revenue of 0.533 billion yuan, up 4.62% year on year; resources and utilities business achieved revenue of 0.681 billion yuan, up 48.06% year on year; geospatial information business achieved revenue of 0.191 billion yuan, up 7.48% year on year; and robot and autonomous driving business achieved revenue of 0.079 billion yuan, up 29.80% year on year. The agricultural machinery autonomous driving business is one of the main components of the company's resources and utilities sector, contributing an important increase. The company's products are rapidly expanding the overseas agricultural machinery automation market with high cost performance, and have now been sold to 68 countries. In terms of robots and autonomous driving, the company has been designated as a designated supplier for autonomous driving position unit business for many car companies, and some related models have been mass-produced. Furthermore, the company has reached a cooperation with Baidu and is the exclusive supplier of Baidu Radish Express sixth-generation unmanned vehicle P-Box products. In the future, the company will actively deploy automotive-grade chips, global SWAS wide-area enhancement systems, and continue to invest in optimizing core algorithms.

The results of the global layout have been shown, and profitability has been enhanced. The company attaches great importance to the expansion of the global market, has established a strong dealer network overseas, and its products have been sold to more than 100 countries and regions around the world. The company achieved overseas revenue of 0.445 billion yuan in 2024, an increase of 34.98% over the previous year. The compound overseas revenue growth rate from 2021 to 2023 was over 50%, showing the company's overseas business results. At the same time, the gross profit of the company's 24H1 overseas business was 67.29%, higher than 54.64% of the domestic business. The company's global layout helped further enhance profitability. The 2024H1 company's expense ratio was well controlled. The sales expense ratio was 19.55%, down 2.60 pct from the same period last year, the management expense ratio was 7.46%, and 0.91 pct lower than 23H1.

Continuing to deepen the technological moat, the low-altitude economy is expected to open up long-term space. The company attaches great importance to technology research and development. In the first half of '24, R&D investment reached 0.242 billion yuan, an increase of 31.28% over the previous year. The company continues to invest in R&D in basic devices such as chips, boards, and modules, and continuously promotes the improvement of technologies, products and solutions in high-precision positioning, integrated navigation, mechanical automation control, lidar systems, etc., and focuses on promoting product upgrades, technological progress, and improving the degree of integration of products and services. In addition, the company actively lays out the low-altitude economy. Relying on the accumulation of high-precision navigation and positioning technology, it can provide comprehensive solutions including navigation and positioning modules, high-precision account services, etc. for operating terminals in the low-altitude economy. At the same time, the company deployed early in the field of lidar and drones, and is expected to expand a second growth curve in the low altitude economy.

Investment advice: We believe that the company is expected to continue to develop rapidly and with high quality in the future based on the layout at home and abroad. The company's net profit from 2024-2026 is expected to reach 0.593/0.753/0.909 billion yuan, respectively, and the corresponding PE multiples are 26x/20x/17x. We believe that the company's overseas markets will continue to bring incremental interest to the company in the future, and that the autonomous driving combination terminal products and low-altitude layout are also expected to bring higher growth to the company. Maintain a “Recommended” rating.

Risk warning: Downstream customer development progress falls short of expectations; the company's overseas market expansion process falls short of expectations.