Matters:

The company released its 2024 semi-annual report, achieving operating income of 3.763 billion yuan, a year-on-year increase of 44.08%; net profit to mother of 0.853 billion yuan, an increase of 25.97% over the previous year.

Ping An's point of view:

H1's performance is growing strongly, and the company's business is operating steadily. With 2024H1, the company achieved operating income of 3.763 billion yuan, a year-on-year increase of 44.08%; realized net profit of 0.853 billion yuan, a year-on-year increase of 25.97%; realized net profit deducted from mother of 0.818 billion yuan, an increase of 32.09%; and achieved earnings per share of 0.37 yuan, an increase of 27.59% over the previous year. The company's revenue and profit growth rate is impressive. The main reason is that the company's product performance has improved, market demand has increased, and customer recognition of the company's products has further increased. In terms of gross margin, 2024H1, the company's comprehensive gross margin was 63.43%, a slight increase of 0.56 pct over the previous year. Among them, the gross margin of high-end processors was 63.43%, up 3.76 pct from the end of 2023, and the profitability of the company's products increased steadily. Furthermore, at the end of 2024H1, the company's inventory was 2.455 billion yuan, a sharp increase of 128.59% from the end of 2023, and advance payments were 3.09 billion yuan, up 29.37% from the end of 2023. To a certain extent, the above indicators showed a steady improvement in the company's operations, and at the same time laid a solid foundation for the company's continued growth in future performance.

The company always adheres to scientific and technological innovation and continuously enhances product competitiveness. The company maintains a high level of R&D investment in product construction and technological innovation, and continuously improves the company's R&D system through continuous and large-scale R&D investment to maintain a high level of technological innovation capabilities. 2024H1, the company invested 1.372 billion yuan in R&D, an increase of 11.54% over the previous year, and R&D investment accounted for 36.46% of revenue; the company has 1,855 R&D technicians, accounting for 91.07% of the total number of employees, and more than 78.76% of R&D technicians have master's degree or above. The high-end processor products independently developed by the company not only have leading computing performance, but also show strong advantages in terms of safety and reliability, industrial ecology, and independent iteration. They are widely used in data centers in various industries, as well as application scenarios such as cloud computing, big data, artificial intelligence, etc., which not only empowers the upgrading of digital intelligence in the industry, but has also become a key engine to help Qianxing Baiye develop new quality productivity.

Investment advice: The company is the core target of domestic computing power. Its CPU and DCU products are highly competitive in the domestic market. Supported by the current domestic substitution trend and the AI wave, the company's performance is expected to maintain steady growth. According to the company's 2024 semi-annual report and our judgment on the industry, we adjusted the company's performance forecast. We expect the company's net profit for 2024-2026 to be 1.769 billion yuan (previous value was 1.749 billion yuan), 2.392 billion yuan (previous value was 2.35 billion yuan), and 3.137 billion yuan (previous value was 3.054 billion yuan), corresponding to the closing price of August 14, 2024. The company's PE for 2024-2026 will be 96.7X, 71.5X, 54.5X, respectively. We believe that the company's products have excellent performance, rich ecological environment, strong competitiveness, considerable potential for future growth, and maintain the “recommended” rating for the company.

Risk warning: (1) Downstream demand falls short of expectations: If the pace of localization substitution or AI implementation slows down, it may adversely affect the company's performance growth. (2) Increased market competition: Domestic competitors are rapidly advancing in technology, and product categories are gradually becoming richer. Once the company's product update and iteration speed slows down, it may face the risk of market share being taken. (3) US semiconductor regulation in China: The company uses a more advanced semiconductor process. In the context of US semiconductor control in China, there may be problems with the OEM process of the company's products being restricted in the future.