The performance was in line with expectations. In the first half of the year, the company achieved operating income of 11.692 billion yuan, a year-on-year increase of 34.0%; realized net profit of 0.838 billion yuan, an increase of 38.1% over the previous year; realized net profit without deduction of 0.79 billion yuan, an increase of 49.7% over the previous year. In the second quarter, we achieved operating income of 6.045 billion yuan, up 27.5% year on year and 7.0% month on month; realized net profit of 0.454 billion yuan, up 64.0% year on year and 17.9% month on month; realized net profit without return to mother of 0.419 billion yuan, up 77.3% year on year and 13.1% month on month. The company continuously enhances the competitiveness of the smart cockpit and intelligent driving business, and combines the development of new customers and the implementation of new technology research and development to help the company achieve high growth in performance and a steady increase in new orders.

Gross margin increased in the second quarter compared to the previous quarter, and cash flow improved significantly. The gross profit margin for the first half of the year was 20.3%, down 0.3 percentage points from the previous year; the gross profit margin for the second quarter was 21.3%, up 1.0 percentage point year on year and 1.9 percentage points month on month. It is expected to be mainly due to the increase in the gross margin of intelligent driving products and the increase in the share of connected services. The cost ratio for the first half of the year was 12.7%, down 1.6 percentage points year on year. Among them, sales expense ratio/management expense ratio/R&D cost ratio decreased by 0.4/0.4/1.2 percentage points year on year, respectively. Net cash flow from operating activities in the first half of the year was 0.615 billion yuan, an increase of 103.4% over the previous year, mainly due to an increase in sales repayments.

The smart cockpit business continues to explore domestic and foreign markets. The revenue of the smart cockpit business in the first half of the year was 7.965 billion yuan, up 27.4% year on year; gross profit margin was 19.6%, which was basically the same as year on year. The company's third-generation cockpit domain controllers have been mass-produced on a large scale among customers such as Ideal, Chery, and GAC Toyota, and have received new orders from customers such as Chery, Geely, and GAC; fourth-generation cockpit domain controllers have been mass-produced in ideal and other customer models, and have received multiple orders from customers such as Ideal, GAC passenger cars, Geely, etc.; the flagship cockpit domain control solution supporting in-cabin mobile office and integrated cabin parking functions has received new orders from leading domestic and foreign car companies. The traditional business continues to expand its global market share. Among the new products, car body domain controllers have been mass-produced and launched, and orders have been received from customers such as Ideal, Chery, PROTON, etc., and HUD and electronic rearview mirror products have also successfully developed markets.

Smart driving and connectivity businesses have maintained rapid growth. In the first half of the year, the revenue of intelligent driving/connected services and other businesses was 2.667/1.06 billion yuan, up 45.1%/66.9% year on year; the gross profit margin of the smart driving business was 18.9%, up 1.9 percentage points year on year, and the gross profit margin of connected services and other businesses was 29.2%. The company's high-computing intelligent driving domain controllers have been mass-produced on a large scale for customer models such as Ideal and Extreme Krypton, and received new orders from customers such as Toyota, Great Wall, GAC Aian, SAIC-GM, and Dongfeng Nissan; lightweight products have been targeted by new customers such as Chery and Hongqi; millimeter wave radar has received new orders from car companies such as Chery, GAC Passenger Vehicle, and GAC Toyota. The company's online services are also developing smoothly, receiving new orders from customers such as Ideal, Chery, and Changan. With the large-scale application of advanced intelligent driving, it is expected that the company's smart driving business will continue to develop rapidly.

EPS is predicted to be 3.55, 4.49, and 5.65 yuan in 2024-2026, which is 38 times the average valuation of the company's 2024 PE, and the target price is 134.9 yuan, maintaining the purchase rating.

Risk warning

Sales in the passenger car industry fell short of expectations; supporting volume of in-vehicle entertainment systems, in-vehicle information systems and driving information systems fell short of expectations; revenue from the Internet of Vehicles, LCD and ADAS businesses fell short of expectations.