Incident: Daotong Technology announced on August 1 that the company achieved operating income of 1.842 billion yuan in the first half of the year, an increase of 27.22% over the previous year; net profit to mother was 0.387 billion yuan, an increase of 104.51% over the previous year.

Revenue was in line with expectations, and expense rates remained stable. In 2Q24, the company achieved revenue of 0.979 billion yuan, a year-on-year increase of 31.98%, and achieved net profit of 0.262 billion yuan to mother, an increase of 123.67% over the previous year. The company's Q2 gross profit margin and net profit margin were 55.89% and 25.03%, respectively, -0.83 pct and +11.69 pct month-on-month, respectively; the company's Q2 disposal of shares in the subsidiary Saibang Technology confirmed investment income of 0.099 billion yuan, which contributed mainly to the increase in the company's Q2 net interest rate. In terms of cost ratio, the company's 2Q24 sales expense ratio, management expense ratio, and R&D expense ratio were 13.04%, 6.32%, and 16.38%, respectively, -1.26pct, -1.68pct, and -0.11pct, respectively, and remained relatively stable overall.

The profitability of charging piles has increased significantly, which is expected to lead to a second growth curve. In the first half of the year, the company's digital maintenance business achieved revenue of 1.438 billion yuan, an increase of 18.04% over the previous year; the digital energy business achieved revenue of 0.378 billion yuan, an increase of 92.37% over the previous year. The main product of the company's digital energy business is charging piles. The business achieved a gross profit margin of 38.86% in the first half of the year, an increase of 5.21pct compared to 33.65% in the full year of last year.

We believe that the increase in the gross margin of the company's charging pile products may be due to the increase in the share of high-end products with high gross margin, as well as the company's optimization in controlling material costs and shipping costs. The significant increase in the profitability of the company's charging stations is expected to bring new growth impetus to the company.

Investment rating: The company's traditional business pattern is stable, and the new charging pile business is expected to open up the company's second growth curve. We expect the company to achieve operating income of 4.195/5.143/6.272 billion yuan and net profit of 0.529/0.637/0.765 billion yuan in 2024-2026. The corresponding PE was 20/16/14 times, respectively, maintaining the “gain” rating.

Risk warning: The development of the company's charging pile products falls short of expected risks; overseas market development falls short of expected risks; overseas charging pile policy guidelines fall short of expected risks; risk of worsening of the charging pile industry chain pattern; risk of worsening of the traditional business competition pattern; economic downturn risks, etc.