Incident: Shiyuan Co., Ltd. announced the 2024 semi-annual announcement. The company achieved revenue of 10.12 billion yuan in 2024H1, YoY +21.4%; realized net profit of 0.5 billion yuan to mother, YoY -17.8%.

After conversion, Q2 achieved revenue of 5.63 billion yuan in a single quarter, YoY +22.8%; realized net profit to mother of 0.32 billion yuan, YoY -0.5%. As the domestic economic environment improves, the company's education business and corporate conference business are expected to recover.

Q2 Revenue continues to grow rapidly: 2024Q2's revenue continues to grow rapidly, and we judge that it is mainly driven by growth in overseas business and household appliances business. According to the company announcement, 2024H1's overseas business and household appliances business increased by 69% and 61% respectively. The company's overseas ODM business, on the one hand, continuously strengthens cooperative relationships with brand customers and stabilizes stock market share; on the other hand, it actively obtains equipment demand brought about by education informatization in Europe and India. At the same time, the company promotes the development of overseas independent brand business by continuously enriching and upgrading its product matrix and strengthening strategic cooperation with leading customers such as Microsoft. Affected by weak procurement demand in the domestic education tablet industry, we judge that Q2's education business is under pressure. According to the company announcement, 2024H1's education business revenue fell 14%.

Q2 profitability declined year over year: Q2 company's net interest rate was 5.6%, -1.3 pct year over year.

Q2 The decline in the company's net interest rate was mainly affected by the decline in gross margin. Q2 The company's gross margin was 5.2 pct year-on-year, mainly because: 1) Domestic education interactive tablet market price competition is fierce, and the company's gross margin of education interactive tablet is under pressure. 2) The price of LCD panels, the main raw material for interactive tablets, has risen. According to Wind data, the average price of the 55-inch and 65-inch 2024Q2 panels is YoY +18%/+16%, respectively.

Q2 net operating cash flow declined year on year: Q2 The company's net operating cash flow in the single quarter was -0.16 billion yuan year on year, mainly because the company increased raw material reserves to cope with rising panel prices. Q2 The company's cash for purchasing goods and receiving labor payments was +1.32 billion yuan compared to the same period last year.

Investment advice: The company is a leading supplier of LCD main control boards and interactive smart tablets in China. Currently, the company is actively exploring new business directions such as overseas business, household appliance components, and computing equipment, and is expected to create a new growth curve. The company's EPS for 2024 to 2026 is expected to be 1.96/2.25/2.60 yuan, respectively, maintaining a buy-A investment rating, giving a price-earnings ratio of 18 times 2024, which is equivalent to a six-month target price of 35.27 yuan.

Risk warning: Panel prices have risen, and industry competition has intensified.