Incident: The company released the “2024 Semi-Annual Report” on the evening of August 22. The company achieved operating income of 4.569 billion yuan, a year-on-year increase of 26.97%; net profit to mother of 0.198 billion yuan, an increase of 2.21% year on year; net profit after deducting non-return of 0.176 billion yuan, a year-on-year decrease of 5.26%.

The controller business segment performed well. 2024Q2, the controller segment's revenue was 2.535 billion yuan, up 38.62% year on year, up 29.18% month on month; gross margin increased 1.59% month on month; net profit to mother was 0.106 billion yuan, up 21.41% year on year. The company's controller sector performed well, mainly because the company actively expanded its business and deepened customer development, promoted technological iteration and new product development, and achieved a continuous improvement in overall operation; the company continued to optimize the cost structure, process level and production efficiency, which contributed to a further recovery in gross margin.

The T/R chip business is waiting to improve. In the first half of 2024, the company's household appliances business revenue was 2.917 billion yuan, up 35.30% year on year, gross profit margin 15.49% (+0.04pct); power tool business revenue was 0.494 billion yuan, up 11.83% year on year, gross profit margin 18.52% (-1.15pct); intelligent product revenue was 0.562 billion yuan, up 34.76% year on year, gross profit margin 20.34% (+0.78pct); T/R chip revenue 0.072 Billions of yuan, a year-on-year decrease of 56.5%, and a gross profit margin of 54.69% (-5.39pct), is mainly due to the company's delivery schedule being affected by downstream user demand plans. According to customer production plan requirements, the company's 2024 production delivery tasks are mainly concentrated in the second half of the year, and the company will accelerate the completion of production and delivery of projects in various fields.

Automotive electronics ODM orders have accelerated breakthroughs. The automotive electronics business is an important driving force for the company's business growth. In the first half of 2024, the automotive electronics business achieved revenue of 0.395 billion yuan, an increase of 73.73% over the previous year. The company successfully broke through many domestic and foreign Tier 1 and automaker customers, entered its qualified supply chain system and obtained project orders, and the winning projects were mainly focused on ODM projects. The product categories involved products such as integrated thermal management modules, compressor control, high pressure oil pump control, HOD, and canopy color changing glass control products independently developed by the company, which are suitable for many models, including GAC Haobo GT, Hongqi, Changan, and Wenjie M7.

Obtaining land use rights will expand production and research capabilities. The company recently successfully won the right to use state-owned construction land with parcel number A603-0420, Yutang Street, Guangming District, Shenzhen. The company will further expand the area of R&D and production bases, raise the overall level of R&D and manufacturing, expand the product line, and give full play to its accumulated advantages in the field of intelligent control and artificial intelligence to consolidate and enhance its market position in the industry.

Investment suggestions: Heertai is a leading domestic intelligent controller company, and its market share in the field of home appliances and tools continues to increase; the automotive electronics sector has abundant on-hand order reserves and continuous breakthroughs in domain control technology. It has already ushered in a period of expansion, outlining the company's second growth curve. The company's net profit for 2024-2026 is estimated to be 0.531 billion yuan/0.679 billion/ 0.88 billion yuan, respectively, with corresponding growth rates of 60%/28%/30%, and corresponding PE 15.9X/12.5X/9.6X respectively, maintaining a “highly recommended” investment rating.

Risk warning: demand for controllers falls short of expectations, subsidiary performance falls short of expectations, raw material prices rise