1H24 results are in line with our expectations

The company announced 1H24 results: 1) Revenue of 10.12 billion yuan, +21.4% YoY; net profit to mother 0.495 billion yuan, -17.8% YoY. 2) Corresponding to 2Q24 revenue of 5.625 billion yuan, +22.8% year over year; net profit to mother 0.317 billion yuan, -0.6% year over year; net profit without deduction of 0.328 billion yuan, +30.5% year over year, mainly due to the cancellation of the one-time share payment fee of 55.07 million yuan due to cancellation of the equity incentive plan in the current period. 3) The company's performance is in line with our expectations.

The domestic education market is still under pressure, and overseas business is growing rapidly: 1) Benefiting from a moderate recovery in global color TV demand, 1H24 LCD board revenue was 3.3 billion yuan, +11% year-on-year, and the gross profit margin remained stable at 14.7%. 2) Domestic demand for interactive education screens has yet to see an inflection point. 1H24's domestic education business revenue was 1.52 billion yuan, -14% year over year, mainly dragged down by a sharp drop in average price; however, Shiva's market share continued to rise, with a shipment share of 45%, +1.0ppt year over year. 3) The audio and video accessories business drove Maxhub to continue to grow. 1H24 domestic enterprise service business revenue was 0.85 billion yuan, +6% compared to the same period last year. MAXHUB's interactive screen shipment share was 27%, still ranking first in the industry. 4) Benefiting from the end of overseas inventory removal and continued development of new markets, overseas business continued to grow rapidly, and some European countries and India performed well.

Expenses were optimized, and profit margins rebounded slightly month-on-month: 1) 2Q24 gross profit margin 22.5%, year-on-year -5.2ppt, and +0.6ppt month-on-month. Compared with 2Q23, domestic educational interactive screens and overseas ODM OEM business price competition was fierce, leading to profit pressure. The gross profit margin of 1H24 interactive smart tablets was 24.5%, -13.6ppt year on year. Compared to 1Q24, the company actively iterated on new products, optimized product costs, and gross margin stopped falling month-on-month. 2) The company actively optimizes expenses to improve operating efficiency. 2Q24 sales expense ratio/management expense ratio was 5.9%/5.2%, year-on-year, -3.0/-0.9ppt, respectively. 3) 1H24 had a net operating cash outflow of 0.251 billion yuan. The company took the initiative to increase the preparation of raw materials such as panels and electronic components, and the inventory at the end of the period reached 3.732 billion yuan, +66.7% over the same period. 4) Due to the company's expansion of overseas customers such as Samsung, the billing period increased compared to domestic customers. 1H24 accounts receivable were 0.437 billion yuan, +47.7% over the same period last year. 5) If the one-time confirmed share payment fee of 55.07 million yuan is added, the net profit margin for 2Q24 is 6.6%, +2.4ppt compared to the previous month.

Development trends

Since June, panel prices have begun to fall month-on-month. At the same time, with the launch of new products at home and abroad, we expect 2H24's cost pressure to ease. The company is actively expanding customers in various businesses such as household appliances and overseas interactive screens. 1H24 household appliance controller revenue is 0.8 billion yuan, +60% year over year; overseas business revenue is 2.324 billion yuan, +69% year over year; we expect to support a further increase in the company's revenue scale.

Profit forecasting and valuation

Considering that competition in overseas markets is still relatively fierce and demand for education and enterprises is still weak, we lowered our 2024/2025 net profit by 3%/3% to 1.334 billion yuan/1.522 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 14.8 times/13.0 times. Maintaining an outperforming industry rating, the target price was lowered by 7% to 36.8 yuan, corresponding to the price-earnings ratio of 19.2 times/16.8 times in 2024/2025, with an upward margin of 29.5%.

risks

Market competition increases risk; overseas expansion falls short of expectations; risk of fluctuating raw material prices.