Incident: In the first half of 2024, the company's total revenue was 3.636 billion yuan, down 5.25% year on year, and net profit attributable to shareholders of listed companies was 0.53 billion yuan, down 6.15% year on year.

Comment: On a quarterly basis, 2024Q1 revenue was 1.74 billion yuan, down 8.3% year on year; net profit to mother was 0.25 billion yuan, down 16.9% year on year; 2024Q2 revenue was 1.9 billion yuan, down 2.2% year on year, and net profit to mother was 0.28 billion yuan, up 6.0% year on year. Fluctuations in the company's performance are mainly due to fluctuations in the share price of Minde Electronics held by the company and the minority shareholding factors of the introduction of Shanhao's intelligent management team. Excluding these factors, the company achieved net profit of 0.648 billion yuan to mother in 2024H1, an increase of 21.36% over the previous year, and the operating performance maintained a good growth trend.

The gross margin of hardware and receipt sales continues to rise, highlighting resilience: 1. Smart terminal clusters: 2024H1 achieved revenue of 1.52 billion yuan, which is basically the same as last year. Overseas business revenue accounted for 75% of the total revenue of the cluster, and gross margin reached 40.90%, an increase of 2.59 percentage points over the previous year. Changes in gross margin are mainly due to the combined impact of the downstream domestic terminal market, which is still in the clean-up stage of the industry, the company actively selects customers and businesses with better business continuity, and the company's continued layout in emerging regions for overseas business. (1) Digital payment terminal business: 2024H1 achieved a total sales volume of products such as smart POS, smart cash registers, standard POS, new code scanning POS, and pan-smart terminals. Among them, smart POS shipments exceeded 0.6 million units, accounting for more than 85% of overseas business revenue. (2) Intelligent sensing business: The company focuses on four major fields: retail, medical care, logistics and industry. The domestic market achieved sales revenue of 0.19 billion yuan and remained stable overall. 2. Industry digital cluster: 2024H1 achieved revenue of 2.109 billion yuan, a year-on-year decrease of 8.28%, gross profit margin of 44.46%, and a year-on-year increase of 2.06 percentage points. Compliance supervision promotes the optimization of industry flow and accelerates industry clearance. The company continues to accelerate the construction of a digital business ecosystem, further improving the quality of merchants, and increasing gross margin.

2024H1 achieved a payment services transaction scale of approximately 1.07 percent. Among them, the number and amount of code scanned transactions increased by 2.6 and 4.6 percentage points, respectively, compared to the total number and amount of transactions over the same period last year. In terms of value-added services, the company provides various business services and fintech services to more than 3.2 million active merchants, and the ARPU value for a single merchant reached 167 yuan in half a year. 2024H1 achieved revenue from operating services of 0.276 billion yuan, a year-on-year increase of 55%.

In the first half of the year, a total of nearly 40 joint receipt projects were added by banks from various regions, with transaction turnover exceeding 360 billion yuan. The total subsidy fee for merchants was 0.319 billion yuan, and the marketing subsidy amount reached 0.223 billion yuan.

Profit forecast, valuation and rating: Considering that it will take time to expand overseas payment hardware into emerging regions and the impact of the macroeconomic environment on transaction flow, the company's 24-25 revenue forecast was lowered to 9/10 billion yuan, up from -26%/-32% from the previous forecast, an additional 26-year revenue forecast of 11.2 billion yuan; the 24-45 net profit forecast was lowered to 1.27/1.52 billion yuan, up 1.82 billion yuan from the previous forecast billion yuan. The current market capitalization PE for 24-26 is 10x/9x/7x, respectively. I am optimistic that the core of the company will benefit from the payment industry's continued clearance and maintain a “buy” rating.

Risk warning: Revenue growth falls short of expectations; overseas payment hardware expansion falls short of expectations.