Overall performance grew steadily, cost optimization and innovative development shaped long-term competitiveness: the company achieved revenue of 41.21 billion yuan in the first half of 2024, a year-on-year increase of 10%, net profit to mother of 5.06 billion yuan, a year-on-year decrease of 5%, net profit after deducting 5.24 billion yuan, and a year-on-year increase of 4%. Among them, single-quarter revenue for the second quarter was 23.39 billion yuan, up 9% year on year, and net profit due to mother of 3.15 billion yuan, down 11% year on year, net profit of 3.48 One billion yuan, a slight increase of 0.02% over the previous year. In an external environment where domestic economic fluctuations are stabilizing and overseas markets are gradually recovering, the overall performance of the company is stable, moderate and positive. The company's steady performance in the first half of 2024 is mainly due to the company's continuously optimized cost structure and innovation-driven revenue growth: 1) Continued investment in the field of intelligent IoT and digital scenarios led to increased sales of high-value-added products and promoted overall revenue growth. 2) The company increased investment in R&D, further optimized the product structure and increased the gross profit margin of major products by improving management and sales efficiency. 3) Strengthen cost control and improve production line automation efficiency, effectively offsetting part of the cost pressure. As the company continues to break through in the field of innovation and is deeply cultivated in the global market, the company is expected to continue to maintain a steady growth trend in the future.

Traditional businesses are under pressure in the short term, and AI empowers digital transformation to bring long-term growth momentum: in the first half of 2024, the company's three major business groups of PBG/EBG/SMBG achieved revenue of 5.693 billion yuan/7.489 billion/ 5.789 billion yuan, respectively, with year-on-year growth rates of -9.25%/7.05%/0.64%, respectively. In the first half of 2024, the company's traditional business revenue was under pressure due to multiple factors such as the tightening of local financial capital investment and the slowdown in overall investment in downstream industries. Under the determined trend of using technological innovation to improve the quality, increase efficiency and reduce costs of government enterprises and promote high-quality economic development, the company continues to promote the AI model to empower enterprises to digitally transform, which is expected to bring long-term growth momentum to the company's three major business groups.

Automotive electronics, robotics and thermal imaging lead the innovative business and build a new growth engine: In the first half of 2024, the company's innovative business achieved revenue of 10.328 billion yuan, an increase of 26.13% over the previous year, accounting for 25.06% of the company's revenue. In the innovative business area, the company excels in automotive electronics, robotics, and thermal imaging technology. Revenue from the automotive electronics business increased by more than 60% year-on-year in the first half of 2024, mainly benefiting from the merger with radar subsidiary Senstec and the rapid development of domestic and international passenger car markets. With outstanding technical capabilities, the field of machine vision and AGV in the robotics business has shown clear competitive advantages in domestic and foreign markets, especially in logistics automation in factories. Demand for thermal imaging technology has increased dramatically in fields such as emergency management and disaster prevention and relief, further driving the rapid growth of this business. These innovative businesses complement traditional businesses and lay a solid foundation for the company's continued future development.

Profit forecast and investment rating: Considering the objective pressure of insufficient effective domestic demand and weak expectations, we lowered our performance expectations. The company's net profit for 2024-2026 is estimated to be 14.9/17.3/19.2 billion yuan respectively (the previous forecast value was 16.3/19.2/21.7 billion yuan), and the current market value corresponding to PE is 16/14/13 times, respectively. The company is a leader in the smart security industry. Currently, it is promoting the layout of new fields, and the revenue share of innovative business revenue and revenue continues to rise, maintaining a “buy” rating.

Risk warning: risk of geopolitical environment; risk of technological upgrading; risk of global economic downturn; risk of exchange rate fluctuations.