Along with the recovery in consumer electronics demand and the acceleration of innovation, the performance of the company's many product lines recovered markedly in 2024. Looking forward to the future, emerging product lines such as high-end acoustics/optics, heat dissipation, and folding screen hinges are expected to benefit from a three-year upward cycle driven by Apple hardware innovation and AI resonance. In the future, the company is expected to expand new product lines around customer A. The company also has a presence in the automotive and XR fields. The acquisition of PSS lays the foundation for expanding the international high-end automotive business. We are optimistic about the flexibility of the company's performance recovery and many future business growth opportunities. We covered it for the first time and gave it an “gain” rating.

Ruisheng Technology: A leader in sensory experience solutions, with multiple product lines around the consumer electronics and automotive fields. Ruisheng Technology started with the acoustics business, with the corporate goal of building the future of sensory experience technology. The product line gradually expanded to the four major sectors of acoustics, electromagnetic transmission and precision structural parts, optics, and MEMS. In 2023, it acquired PSS to expand the international high-end automotive acoustics business. The company's performance has been under pressure in the past few years, mainly due to poor demand for mobile phones and other terminals and a slowdown in component innovation. 23H2 As the mobile phone market recovers, the demand and profitability of the company's various businesses have gradually recovered. In the first half of 2024, the company achieved revenue of 11.25 billion yuan, +22.0% year on year; net profit of 0.537 billion yuan, +257.3%; gross profit margin 21.5%, +7.4pcts year on year; net profit margin 4.58%, +4.0pcts year on year. Among them, PSS, a leading automotive acoustics company, contributed 1.52 billion yuan/gross profit margin of 25.0%.

The performance of many product lines has clearly recovered, focusing on the innovative prospects of emerging product lines such as high-end acoustics/optics, heat dissipation, and folding screen hinges. Android phone shipments this year are expected to continue the recovery trend from the second half of last year. The company achieved demand recovery and product structure improvements in the first half of the year. 24H1's acoustic/optical/electromagnetic transmission and precision structural parts business revenue increased by 4.1%/24.9%/1.1% respectively, and gross margin increased by 4.4/21.7/3.6 pcts. We are optimistic about the innovation trend of various products in the future: 1) Acoustics: 23H2 industry is returning to the upward trend, new products such as SLS master speakers have room for growth. AI has driven the rapid iteration of mobile phone voice interaction technology, and the MEMS microphone business is also expected to upgrade; 2) Optics: the main factor that dragged down the company's profits in 22-23, as optical demand for Android phones picked up and optical innovation combined with its own product structure optimization. It is recommended to focus on the increase in the revenue share of high-end lenses and modules and the expansion of glass plastic hybrid products. Progress; 3) Electromagnetic transmission and precision structural parts: hinges, heat dissipation, and pen motor cases have a lot of room for growth in the future. Folding phones have gone from innovation to practicality. The company's rotating shafts have been recognized by customers. The 24H1 has shipped nearly 0.5 million units, and it is hoped to expand more new customers in the future; 24H1 revenue from the cooling business has increased by nearly 100%, the AI upgrade of terminals has increased computing power, and there is an upward trend in stand-alone power consumption, driving upgrades in the specifications and usage of stand-alone cooling materials, and the cooling business is expected to maintain high growth.

Customer A's business is expected to benefit from a three-year upward cycle driven by Apple's hardware innovation and AI resonance, and is expected to expand new product lines around Customer A. Company A's customer business is mainly acoustics, motors, and pen motor cases. We believe that in the next three years, Apple's AI end-side innovation will drive the development of related industry chains. For example, AI voice interaction demand will drive acoustic innovation, and the company's microphone business is expected to benefit; the company's new production capacity in Yangzhou is expected to increase, and the share of the laptop case business is expected to grow steadily; potential changes in customer A's button plan are expected to drive an increase in motor usage in the future. At the same time, the company is expected to expand new product lines in the next few years. For example, the company's cooling products have covered many leading Android phone manufacturers, and may be introduced into customer A's cooling supply chain in the future.

Investment advice: The company's consumer electronics business is recovering. Many product lines benefit from consumer electronics innovations such as AI and folding screens. Customer A's business is expected to benefit from a three-year upward cycle driven by Apple's hardware innovation and AI resonance. In the future, it is expected to expand new product lines around customer A, and automotive and XR also have long-term growth prospects. We expect the company's 24-26 revenue of 25.2/28.89/33.13 billion, net profit of 1.44/1.85/2.17 billion, corresponding PE 18.6/14.5/12.3 times. Covered for the first time, a “gain” rating was given.

Risk warning: Macroeconomic downturn, industry competition intensifies, demand falls short of expectations, and intensification of trade frictions.