Incident: The company released its 2024 semi-annual report on August 19. The company's revenue for the first half of 2024 was 0.461 billion yuan, up 10.48% year on year; net profit to mother reached 0.027 billion yuan, up 1.92% year on year, and performance improved steadily. The company currently has orders of nearly 0.8 billion yuan, a year-on-year increase of 13.78%, a record high for the same period.

Revenue and profit are growing steadily, and the intelligent application business is growing rapidly. The company achieved revenue of 0.461 billion yuan in 2024, up 10.48% year on year; net profit to mother reached 0.027 billion yuan, up 1.92% year on year.

The company currently has orders of nearly 0.8 billion yuan, a year-on-year increase of 13.78%, a record high for the same period. In the Q2 quarter, the company achieved revenue of 0.288 billion yuan, an increase of 18.90% year on year; net profit to mother reached 0.033 billion yuan, an increase of 0.37% year on year. Among them, the command and dispatch business revenue was 0.252 billion yuan, down 8.59% year on year, and gross margin reached 44.03%, up 1.23 pct; the intelligent application business achieved revenue of 0.119 billion yuan, up 45.74% year on year, and gross margin reached 30.00%, up 1.22 pct; the industry IoT application business revenue was 0.082 billion yuan, up 61.95% year on year, and the gross profit margin was 55.89%, up 10.10 pct. The company's market recognition in the field of intelligent applications and industrial IoT applications has increased.

A high proportion of R&D investment has established technological advantages and achieved breakthroughs in the “Belt and Road” overseas market. In terms of R&D, the company invested 0.074 billion yuan in H1 R&D in 2024, accounting for 16.08% of revenue, and the share of R&D investment continued to increase. The company added 38 software copyrights and 12 invention patents, and obtained the “High-tech Enterprise Innovation Capability Assessment AAAAA Level”. The company set up an artificial intelligence research and development center in Jinan to implement the GSM-R network and automatic analysis and anomaly warning functions for critical railway traffic business faults carried by the GSM-R network. The system has been applied in some railway administrations. At the 2024 Asia Pacific Railway and Rail Transit Exhibition, the company showcased an intelligent railway FRMCS solution composed of a Huawei digital intelligence dock, Jiaxun Feihong MDS wired scheduling communication, and MCX wireless broadband cluster communication. In the domestic market, the company won 10 million bids for the “China Railway Hohhot Group Co., Ltd. Communications Equipment Procurement Project Comprehensive Video Surveillance Centralized Management Cloud Platform” project, etc. In foreign markets, the company actively participated in the “Belt and Road” construction and participated in the construction of the Mexican railway project. For the first time, it directly undertook nearly 10 million construction projects from overseas customers, and achieved two major breakthroughs in the application of intelligent railway perimeter protection solutions in overseas railways.

Railway informatization drives downstream demand, and partnerships are stable. In the first half of 2024, China's railway investment picked up across the board, completing fixed asset investment of 337.3 billion yuan, an increase of 10.6% over the previous year. The full opening of a new era of 5G-R private networks and the rise in the popularity of digitally intelligent railway construction have further increased the demand for the company's products and solutions related to high stability, high reliability, and high safety. The company has completed research and development of products and solutions related to command and dispatch based on 5G-R, and products related to transportation solutions have covered 18 railway stations. The company provides relevant products and solutions to well-known industry customers in the railway sector, defense and military industry, National Energy Group, CNPC, Sinopec, etc., to help industry customers build informatization. As a deep partner in Huawei's smart transportation industry, the company won the “Excellent Solution Partner Incubation Award” and the “Outstanding Partner Award” from the Huawei Intelligent Transportation Corps.

Investment suggestions: With the overall recovery of railway investment and the rise in the digital railway construction boom, the company deepens the 5G+AI layout, consolidates the leading market position of the “Smart Command and Dispatch Whole Industry Chain” series of products and comprehensive solutions with a high level of R&D investment, rich customer resources and stable partners, and expands the intelligent application business. The company has forged leading R&D capabilities. We maintain our profit forecast. We expect to achieve operating income of 1.226/1.35/2.025 billion yuan in 2024/25/26; the company expects to achieve a net profit of 0.085/0.129/0.192 billion yuan in 2024/25/26, maintaining a “highly recommended” rating.

Risk warning: 5G-R progress falls short of expectations, 5G-R equipment replacement pace is extended, 5G-R equipment tender prices fall short of expectations, and changes in the competitive landscape of the industry