Matters:

On August 14, the company disclosed its 2024 semi-annual report. In the first half of the year, it is expected to achieve operating income of 3.763 billion yuan, an increase of 44.08% year on year; net profit to mother of 0.853 billion yuan, up 25.97% year on year; after deducting non-net profit of 0.818 billion yuan, an increase of 32.09% year on year.

Commentary:

Revenue and profit increased significantly, and profitability remained stable. In the 2024Q2 single quarter, the company achieved operating income of 2.171 billion yuan, a year-on-year increase of 49.67%, and net profit to mother of 0.565 billion yuan, an increase of 28.95% over the previous year; performance achieved rapid growth, mainly due to increased market demand and continuous improvement in the company's product performance. In the first half of 2024, the company achieved a gross sales margin of 63.43%, a year-on-year increase of 0.56pct, a net sales margin of 32.58%, a year-on-year decrease of 1.56pct, and its profitability remained relatively stable.

Investment in research and development continues to be increased, and the technological moat is gradually deepening. Focusing on the general computing market, the company continues to focus on its main business and is committed to providing customers with high-performance, high-reliability, low-power products and high-quality services. In the first half of 2024, the company invested 1.372 billion yuan in R&D, an increase of 11.54% year on year, and the number of R&D personnel increased by 34% year on year. The company maintains a high level of investment in R&D, and maintains and consolidates its current market position and competitive advantage through measures such as technological innovation, product iteration, and performance improvement. Currently, the performance and ecology of the CPU and DCU developed by the company are in a leading position in China.

The industrial chain is developing collaboratively, and Haiguang CPUs are widely used. On the upstream side, the company continues to increase cooperation with upstream companies in IP, EDA design tools, chip manufacturing, and packaging. On the downstream side, server vendors such as Inspur, Lenovo, Xinhuasan, and Tongfang have been pioneered, effectively promoting the industrialization of Haiguang's high-end processors. Currently, Haiguang CPUs have been used in telecommunications, finance, the Internet, education, transportation, etc.; Haiguang DCU is mainly commercialized for computation-intensive applications such as big data processing and commercial computing, as well as large model training, artificial intelligence, and pan-artificial intelligence applications.

Investment advice: As a domestic high-end processor core manufacturer, the company is expected to continue to benefit from the high domestic computing power boom. We expect the company's revenue for 2024-2026 to be 8.429/11.38/14.988 billion yuan, corresponding growth rate of 40.2%/35.0%/31.7%; net profit to mother is 1.698/2.351/3.173 billion yuan, corresponding growth rate of 34.4%/38.5%/35.0%. In terms of valuation, PS is used. Considering comparable company valuations and the company is a leading domestic x86 CPU company and is in a period of rapid business expansion, we gave 25xPS in 2024, with a corresponding target price of 90.67 yuan, maintaining the “recommended” rating.

Risk warning: Product development iterations fall short of expectations; market development falls short of expectations; Xinchuang's implementation falls short of expectations.