1H24 results are in line with our expectations

The company announced 1H24 results: operating income of 0.072 billion yuan, year-on-year; loss of 0.024 billion yuan; loss of 0.034 billion yuan after deduction. Looking at a single quarter, 2Q24 achieved revenue of 0.052 billion yuan, or -58.41% year-on-year, +163.16% month-on-month; loss of 0.009 billion yuan. The results were in line with our expectations.

Development trends

Delivery schedules disrupted performance, and 2Q gross profit improved significantly. 1) 1H24's T/R chip achieved revenue of 0.072 billion yuan, or -56.55% over the same period, mainly due to the slow progress of the company's product delivery project, which was mainly affected by downstream user demand plans. 2) The company's 1H24 gross margin was 5.39ppt to 54.69% year over year, of which 2Q24 gross margin increased 22.3ppt to 60.8% month-on-month. The company continued to promote cost reduction and efficiency measures, and downstream demand gradually recovered, driving a significant improvement in 2Q24 gross margin. 3) The company's 1H24 net profit is under pressure in the short term, mainly due to the company's normal R&D expenses, accrued credit impairment losses, and amortization of equity incentive expenses.

Cost-side spending has expanded, and product development iterations are progressing steadily. 1) The company's expense ratio increased by 53.44ppt to 74.92% year-on-year during the 1H24 period. Among them, the R&D expenditure rate increased by 37.07ppt to 50.70% due to increased R&D investment, and the management expenses ratio due to equity incentive expenses and new business site decoration costs increased 15.07ppt to 21.63% year-on-year. 2) The company is steadily advancing the R&D iteration of core products and undertaking the R&D needs of new equipment in many fields. 1H24 R&D expenses increased 61.63% year-on-year to 0.036 billion yuan. During the reporting period, miniaturized phased array T/R chips were gradually mass-produced, airborne and space-borne products entered the mass production stage one after another, and the iteration of satellite communication T/R chips and phased array terminal application chip solutions continued. We believe it is expected to continue the company's leading edge in the field of space-borne T/R chips.

Downstream demand gradually recovered, and equity incentives unleashed operating vitality. 1) According to the company's announcement, the company's downstream user demand has recovered. According to customer production plan requirements, the company's 2024 production delivery tasks are mainly concentrated in the second half of the year. As one of the few domestic enterprises that can provide complete and advanced phased array T/R chip solutions and aerospace grade chip R&D, testing and production, we believe it is expected to continue to benefit from the development of China's equipment informatization and satellite communication industry. 2) During the reporting period, the company implemented the 2024 equity incentive plan and granted 3.77 million shares of the company's shares for the first time to 93 people, including key management and core technical personnel. We believe that the implementation of the equity incentive plan is expected to bind the core business team and stimulate employee motivation, thereby driving the company's further growth.

Profit forecasting and valuation

Considering the company's downstream demand and the pace of product delivery, we lowered the company's 2024/2025 profit forecast by 24.9%/26.9% to 0.088/0.133 billion yuan. The current stock price corresponds to 46.4x P/E in 2025. We are optimistic about the company's leading edge in the T/R chip field and maintain the industry rating. Considering the decline in the industry's valuation center, the target price was lowered by 43.3% to 37.69 yuan, corresponding to 58.9x P/E in 2025, with a potential increase of 27%.

risks

Fund-raising project construction falls short of anticipated risk; downstream demand falls short of expected risk; market competition increases risk.