Incident: In the first half of 2024, the company achieved operating income of 13.126 billion yuan, a year-on-year increase of 13.79%; realized net profit to mother of 0.784 billion yuan, a year-on-year decrease of 3.40%; after deducting non-net profit of 0.756 billion yuan, an increase of 2.17% year on year.

The impact of factors such as product prices and gross margin is expected to improve significantly in the second half of the year: mainly driven by reasons such as new consumer electronics product stocking and promotion of old iPhone models, the company's overall revenue performance was steady. 2024Q2 achieved revenue of 6.43 billion yuan, +32.28% year over year, and -3.69% month over month. 2024H1, the company's communication board/consumer electronics and computer board business achieved revenue of 8.73/3.931 billion yuan respectively, an increase of 3.68%/36.57% year-on-year.

However, due to the price reduction strategy, the gross margin of the PCB for older model series such as the iPhone 15 is under pressure. The company's 2024Q2 comprehensive gross margin was 15.48%, an improvement of 0.73 percentage points over the previous year, and a decrease of 4.89 percentage points over the previous year. Combined with factors such as the high exchange base (2023Q2 financial revenue of 0.425 billion yuan, 2024Q2 financial revenue of 0.219 billion yuan) and R&D expenses (2023Q2 is 0.495 billion yuan, 2024Q2 is 0.573 billion yuan), the company achieved net profit of 0.287 billion yuan to mother in 2024Q2, -27.03% YoY, -42.29% YoY, but is expected to be affected by factors such as product prices and gross margin in the second half of the year Significant improvements are expected.

We are optimistic about PCB support upgrades brought about by AI in terminals for a long time. The revised equity incentive draft issued by the company this time did not adjust the performance assessment target, but the minimum achievement limit was increased by 80%. It is planned that the revenue for 2024 and 2025 will not be less than 40.3 and 42.8 billion yuan, respectively, and the ratio will be unlocked according to the achievement rate of the performance assessment target. To achieve 80% to 100% of the equity incentive target, the company will reach the revenue target of 19.114-27.174 billion yuan in the second half of 2024, or -6.90% to +32.36% year-on-year. New mobile phones from the company's major customers have already begun to be collected. The consolidated revenue for July 2024 was RMB 2.673 billion, +22.80% year-on-year and +26.30% month-on-month. It is expected that production will continue to be full in August-September. The gross margin of new mobile phones is superior to that of old models, and overall profitability is expected to increase significantly in the second half of the year.

Investment proposal: We expect the company to achieve operating income of 34.68/38.48/44.114 billion yuan and net profit to mother of 3.529/4.277/5.298 billion yuan in 2024-2026. The corresponding PE was 22.27/18.38/14.84 times, respectively, maintaining the “gain” rating.

Risk warning: Industry demand falls short of expectations; peer competition intensifies; production expansion progress falls short of expectations.