Incident: The company released its 2024 semi-annual report. 1H2024 achieved operating income of 1.563 billion yuan, a year-on-year increase of 17.56%; realized net profit to mother of 0.324 billion yuan, an increase of 37.69% year-on-year; and realized deducted non-net profit of 0.313 billion yuan, a year-on-year increase of 36.69%. 1H2024 achieved a steady increase in revenue and profit, and the performance was in line with market expectations.

Product prices have been raised and costs have been reduced, and gross margin has increased significantly. According to data disclosed by the company, the average unit price of 1H2024's core product LED display control system and video processing system increased by 6.4% and 15.2%, respectively, and the average cost decreased by 7.0% and 4.3%, respectively, resulting in a gross margin of 7.72 pcts and 6.69 pcts respectively. We believe that the unit price of the company's products has been reduced while the price of raw materials such as chips has been reduced, indicating that with the promotion of MLED small-pitch technology and 4K/8K display upgrades, the company's products continue to be upgraded and iterated, increasing the added value of algorithms in the ultra-high definition industry chain. Taken together, 1H2024's gross margin increased by 6.14 pcts to 55.54% year on year, net profit margin increased by 3.04 pcts year on year to 20.76% year on year, and profitability increased significantly.

Actively explore overseas sales channels and strengthen research and development to promote product upgrades. 1H2024, the company's sales, management, and R&D expenses increased by 1.20pcts, 0.31pcts, and 2.07pcts year-on-year, increasing sales and R&D investment. The company participated in large-scale exhibition events such as 2024 International Intelligent Display and System Integration Exhibition (ISLE), 2024 China (Beijing) International Audiovisual Integrated Equipment and Technology Exhibition, and InfoComm US Exhibition, and showcased various innovative solutions such as XR virtual shooting, MLED ultra-high image quality full link, high-end stage rental, and new professional display control distribution. 1H2024, the company's overseas revenue increased by 41.7% year on year, which is significantly higher than the domestic growth rate of 12.6%. In terms of research and development, the company launched high-end rental stage solution systems for high-end scenes for stage performances, high-end auto shows, and business meetings, as well as MLED fully automatic rework machines for inspection and repair by MLED manufacturers, etc., and the product matrix continues to be upgraded.

Investment suggestions: The company is deeply involved in the field of MLED video image display control, using the high adhesive card positions of display control systems and screen manufacturers, and the cost-effective advantages of going overseas to accelerate the release of high-margin video equipment products; forward-looking layout of MLED inspection equipment and chips to explore the core value of the entire industry chain. We predict that in 2024-2026, the company will achieve revenue of 3.831, 4.918, and 6.299 billion yuan, and net profit to mother of 0.847, 1.183, and 1.57 billion yuan. The corresponding PE is 18x, 13x, and 10x, maintaining an “increase in holdings” rating.

Risk warning: MLED industry development falls short of expectations; video equipment overseas falls short of expectations; risk of macroeconomic fluctuations