Heltai 1H24's revenue increased 27.0% year on year, which is basically in line with market expectations. The company announced 1H24 results: revenue +27.0% to 4.57 billion yuan, net profit to mother +2.2% year over year to 0.2 billion yuan, after deducting non-net profit -5.3% to 0.18 billion yuan. Single quarter 2: revenue +32.4% YoY to 2.59 billion yuan, +30.5% month-on-month; net profit to mother -9.4% YoY to 0.1 billion yuan, +5.0% month-on-month; deducted non-net profit -17.0% YoY to 0.09 billion yuan, +13.1% month-on-month, which is basically in line with market expectations.

Development trends

Customer development has been effective, and the business situation continues to improve. In 1H24, the company's controller segment revenue was +31.0% to 4.5 billion yuan, and net profit to mother was +28.3% to 0.21 billion yuan; in a single quarter, controller segment revenue was +38.6% to 2.54 billion yuan, +29.2% month-on-month, and net profit to mother +21.4% to 0.11 billion yuan. By product, 1H24, the company's home appliances/power tools/automotive electronics/intelligence revenue was +35.3%/+11.8%/+73.7%/+34.8% to 29.2/0.49/0.4/0.56 billion yuan, respectively. The company broke through the new product line of old customers in the field of home appliances business, formed multiple performance growth points, and doubled the domestic home appliance business; grasped the miniaturization and convenience needs of the downstream market in the field of power tools while expanding the new product ecosystem for large-scale garden tools; insisted on implementing highly standardized R&D processes in the field of automotive electronics to ensure highly reliable product quality, which developed faster than other product businesses; grasped AI intelligent technology trends in the field of intelligent products, continued to invest in R&D, and reached cooperation with many high-quality customers. Affected by downstream customer demand, the company's chip product delivery slowed, and the 1H24 chip segment's revenue was -56.6% year-on-year to 0.07 billion yuan.

The gross margin of the intelligent controller sector has increased, and cost reduction and efficiency have continued to be promoted. 1H24, the company's gross margin was -1.3ppt to 17.5% year on year, and the gross margin of the smart controller sector was +0.1ppt to 16.9% year on year. Among them, the gross margin of home appliances/power tools/intelligent was +0.04/-1.2/+0.8ppt to 15.5%/18.5%/20.3% year over year, respectively; the chip sector's gross margin was -5.4ppt to 54.7% year over year. 1H24, the company refined the cost control mechanism. The total three fees were +25.0% to 0.54 billion yuan. The cost increase matched the revenue growth, and the sales/management/R&D expense ratio was basically the same year on year. Due to the decline in revenue in the chip sector and the change in exchange earnings from positive to negative compared to last year, 1H24's net interest rate/deducted non-net interest rate to mother was -1.0/-1.3ppt to 4.3%/3.8%, respectively. In 1H24, the company's operating cash changed from a net inflow to a net outflow of 0.12 billion yuan over the same period last year.

Net operating cash inflows decreased by 0.06 billion to 0.03 billion yuan year-on-year in the second quarter, mainly due to the increase in the company's accounts receivable and preparation. We expect cash flow to improve as products delivered are confirmed.

Profit forecasting and valuation

Maintain an outperforming industry rating. Considering the growth in the company's downstream demand, we raised our 2024/25 revenue by 6%/10% to 9.6/12.1 billion yuan. Considering the impact of changes in revenue structure on gross profit margin, we kept net profit basically unchanged. Considering the decline in the valuation center of the industry, we lowered the target price by 37% to 12 yuan (based on the SOTP valuation method, the controller business/chip business corresponds to 20/30x 2024e P/E). The current stock price corresponds to 17/12x 2024/25e P/E, with 30% upward space.

risks

Downstream inventory removal progress and demand recovery fell short of expectations; there is a risk that raw materials will rise in price and be out of stock.