Performance summary: In the first half of 2024, the company achieved operating income of 3.763 billion yuan, a year-on-year increase of 44.08%, and achieved net profit to mother of 0.853 billion yuan, an increase of 25.97% over the previous year. After deducting profit and loss effects such as government subsidies, the company achieved net profit of 0.818 billion yuan after deducting profit and loss effects such as government subsidies, which was an increase of 32.09% over the previous year. 2024Q2 achieved revenue of 2.171 billion yuan in a single quarter, a year-on-year increase of 49.67%, and realized net profit to mother of 0.565 billion yuan, an increase of 28.95% year-on-year.

The company continues to invest in CPU and DCU chip technology, and R&D projects are progressing smoothly. In the first half of 2024, the company's R&D expenses were 1.131 billion yuan, a year-on-year increase of 35.21%. As of June 30, 2024, the company had 1,855 R&D personnel, an increase of 214 over the end of 2023. The number of R&D personnel accounted for 91.07% of the total number of people in the company. In the research project, projects such as next-generation Haiguang Cooperative processor product engineering technology were approved and completed.

Downstream customers are in high demand for computing power, and the company's DCU adaptations have all achieved phased results. In May 2024, China Mobile's 7994 AI server collection results were implemented, and in July 2024, China Telecom Server announced a server procurement project with an estimated purchase volume of 0.156 million units (of which 13,135 GPU servers were purchased). In the first half of 2024, the company's DCU products added adaptations to the Tongyi Thousand Questions model. Previously, adaptation work to models such as Wenxin Yanyan was completed.

We believe that with the rapid implementation of generative AI in various fields, downstream customers represented by operators and Internet vendors may speed up the construction of AI computing power and drive the growth of domestic computing power with high certainty. The accelerated adaptation of the company's DCU products helps to continuously improve the software platform, further enhances the competitiveness of the company's DCU products in scenarios such as model reasoning, and lays a solid foundation for the release of subsequent products.

Investment advice: We expect the company's net profit to be 1.803 billion yuan, 2.529 billion yuan, and 3.358 billion yuan respectively from 2024 to 2026, up 42.7%, 40.3%, and 32.8% year-on-year, maintaining a “buy” rating.

Risk warning: downstream demand falls short of expectations; implementation and commercialization of artificial intelligence technology falls short of expectations; industrial policy changes; macroeconomics fall short of expectations.