The company disclosed its 2024 semi-annual report: 24H1 revenue of 2.58 billion yuan, up 13.1% year on year; net profit to mother 0.282 billion yuan, up 8.9% year on year; net profit after deducting non-return to mother 0.277 billion yuan, up 9.9% year on year. Among them, 24Q2 revenue was 1.35 billion yuan, up 11.6% year on year; net profit due to mother was 0.156 billion yuan, down 6.6% year on year; net profit without return to mother was 0.155 billion yuan, down 4.0% year on year. Excluding non-operating factors such as income tax and financial expenses, the 24Q2 EBIT (net profit+income tax+financial expenses) increased 18.4% year over year. Results for the first half of the year were generally in line with expectations.

The second and third growth curve for smart hardware is accelerating. According to the company's semi-annual report, 24H1 smart home entry/intelligent service robot business revenue increased 69%/273% year-on-year respectively, and the revenue share increased to 12.8%/2.1%, respectively. Currently, smart door locks are rapidly penetrating into thousands of households. The company has used technology and channel advantages to expand its market share and successfully cultivate a second growth curve. As the company's incubation business, intelligent service robots open up long-term growth prospects. In addition to household sweepers, the company continued to launch new products such as commercial sweepers and AI proxy home assistant robots, and achieved a breakthrough in small-scale marketing in the first half of the year. We believe that the company is likely to cultivate a third growth curve in the direction of intelligence.

“Cloud+AI” ecological evolution, supported by a multi-modal large model. 24H1's cloud platform business revenue increased 30% year-on-year, accounting for 19.3%, and the high resilience of fluorite clouds was once again proven. The company independently developed a large, embodied intelligent model for vertical IoT scenarios - the “Blue Ocean Big Model” to achieve collaboration between edge computing and cloud computing. Supported by the AI model, intelligent algorithms have accelerated commercial deployment, and recently released new video call cameras, home assistant robots, etc. are in high demand for end-cloud collaboration, which is expected to drive the C-side cloud payment rate.

Overseas markets and online channels continue to gain strength. 24H1's overseas revenue increased 30% year on year, accounting for 32.9%. Overseas, the company focused on developing offline KA chain channels, expanding distribution channels such as dealers, street stores, electrical hardware, etc., and actively developing digital marketing and e-commerce business in some countries. In terms of domestic e-commerce channels, the company attracted consumers through live streaming, high-quality talent delivery, e-commerce with interest in content such as Douyin, etc., and online B2C channel revenue achieved a 40% year-on-year increase.

Additionally, sales to professional customers (mainly operators) fell 35.9% in the first half of the year, putting some pressure on the revenue growth rate of smart home cameras.

Gross profit margins are stable at a high level, and staff expansion is still active. 24H1's gross profit margin was 43.3%, an increase of 0.4 pct over the previous year, and remained at a high level. We believe that it mainly benefited from the company's lean supply chain management and the increase in the share of high-margin cloud platform/smart home entry business, while the share of revenue from professional customers with low gross margins declined. Gross margin is expected to stabilize in subsequent quarters.

On the cost side, sales/management/R&D expenses increased by 18.7%/12.0%/14.9% respectively in the first half of the year; the total number of employees in the first half of the year increased by about 16% compared to the end of last year. Under clear business prospects, the company maintained a relatively active expansion strategy.

Investment analysis opinion: Considering the contraction of the market for professional customers and the company's active investment in personnel expenses, we revised the 2024-2026 net profit forecast value to 0.645/0.807/1.021 billion yuan (the original forecast value was 0.706/0.898/1.105 billion yuan), corresponding to 24-26 PE of 35/28/22 times, respectively, to maintain a “buy” rating.

Risk warning: Competition in the smart home industry intensifies; commercialization of AI algorithm packages falls short of expectations; overseas business development falls short of expectations.