1H24 results are basically in line with our expectations

Fluorite Network released its 2024 mid-year report: 1H24 achieved revenue of 2.583 billion yuan, up 13% year on year; realized net profit of 0.282 billion yuan, up 9% year on year; net profit after deducting non-return to mother was 0.277 billion yuan, up 10% year on year, basically in line with our previous expectations. Corresponding to the single quarter of 2Q24, the company achieved operating income of 1.347 billion yuan, an increase of 12% over the previous year and an increase of 9% over the previous month; net profit to mother was 0.156 billion yuan, down 7% year on year and 25% month on month.

Development trends

The ecosystem has been fully upgraded to “2+5+N”, and the smart home entry and IoT cloud platform drive business growth on two wheels. The fluorite ecosystem was fully upgraded from “1+4+N” to “2+5+N”, driven by AI and fluorite cloud as dual-core, including five AI interactive core self-developed product lines for smart home cameras/smart entry/intelligent service robots/smart wearables and intelligent control, as well as a Class N ecological product line that is seamlessly connected through an ecosystem controller. The smart home business revenue increased 9.42% year over year to 2.072 billion yuan. Among them, 1H24's smart home entry product matrix was gradually enriched, with revenue up 68.97% to 0.328 billion yuan, and gross margin increased 8.21pct to 41.46% year over year; robots, as the company's incubation business, 1H24 achieved an initial breakthrough in small-scale listing, and revenue increased 273.34% year over year to 0.055 billion yuan; smart home camera revenue fell 4% year on year to 1.444 billion yuan (gross profit margin 39.41%). In addition, at the 2024 ECDC Fluorite Cloud Developers Conference, the company announced better developer integration solutions, including intelligent visual inspection components, intelligent video customer service components, and remote troubleshooting expert tools. The revenue of the 1H24 Fluorite IoT Cloud Platform increased 29.97% year over year to 0.495 billion yuan, and gross margin increased 0.97 pct year on year to 76.13%. We believe that the company is rooted in visual perception and AI technology capabilities, continues to expand the layout of various hardware products, enrich B-side and C-side cloud platform capabilities, and continue to consolidate competitive barriers.

Deeply cultivate domestic online and offline channel construction and optimize international business layout. The company continues to deeply cultivate retail channels, increase sales through live streaming on e-commerce platforms and delivery of goods by high-quality talents, and operate e-commerce with refined content interest such as Douyin. 1H24 online B2C channel revenue increased 40.2% year on year; in terms of offline channels, 1H24 dealer channel revenue increased 15.7% year on year. In line with smart home entry product sales, the newly expanded hardware channel became a new revenue growth point. In addition, the company optimized the international business layout, focused on developing offline KA chain channels according to the characteristics of different regions, expanding distribution channels such as dealers, street stores, electrical hardware, etc., and actively developing digital marketing and e-commerce business. 1H24 overseas sales revenue increased 29.9% year-on-year. We believe that the company continues to optimize channel construction and is optimistic about long-term growth momentum.

Profit forecasting and valuation

Due to pressure on short-term demand for smart home cameras, we cut our net profit for 24/25 by 4%/5% to 0.665/0.81 billion yuan. The current stock price corresponds to a 24/25 price-earnings ratio of 34.2/28.1 times. Maintaining an outperforming industry rating, the target price was lowered by 5% to 36.0 yuan based on 42.6 times 2024 P/E, corresponding to a 25-year price-earnings ratio of 35.0 times, and there is 25% room to rise compared to the current stock price.

risks

Industry competition intensified, and new product development/channel expansion/IoT cloud platform development fell short of expectations.