Event: The company released its 2024 semi-annual report. It achieved operating income of 3.578 billion yuan, an increase of 94.51% year on year, and realized net profit of 0.358 billion yuan to mother, an increase of 216.58% year on year.

Performance continues to grow at a high rate, and profitability has increased significantly. In the Q2 quarter of 2024, the company achieved revenue of 1.819 billion yuan, a year-on-year increase of 75.92%, and realized net profit to mother of 0.196 billion yuan, an increase of 191.38% over the previous year. The overall gross profit margin of 2024H1's business was 17.46%, up 3.84 percentage points year on year. Among them, the gross margin of IoT smart terminal products reached 32.21%, up 10.38 percentage points year on year. The company's outstanding performance is mainly due to: (1) Continued increase in demand for storage capacity, speed, and efficiency in AIPC, data centers, enterprise storage, edge computing equipment, etc., and the performance of the company's storage products has increased significantly. (2) In terms of the smart IoT terminal business, the company continuously optimizes the product layout and business model, increases the sales share of high-value-added products, develops new business models, strengthens the development of new customers and the research and application of emerging products, and enhances the company's overall profitability. (3) Prices of some raw materials have declined and the effects of the digital construction of intelligent manufacturing have been shown, leading to continuous optimization on the cost side and an increase in gross margin.

Computing power and cloud services work together to open up new growth space. According to the company's announcement, the company already has a solid foundation for project implementation in the computing power server business. The company has cooperated with leading brand customers of AIOT smart hardware. Currently, the company has signed a tripartite agreement with Japan's Ubida Co., Ltd. and UBS Super Computing Co., Ltd. to carry out cloud business cooperation based on computing power service requirements. The three parties will form an in-depth partnership by integrating the comprehensive service advantages of cloud computing resources, technology and operations around the world to jointly build an efficient cloud service system involving high-end computing power-based clouds Business areas such as computing power leasing, cloud security and big model cooperation, and AIGC for cross-border e-commerce. In addition, the company signed a “Cloud Business Cooperation Agreement” with China Mobile International Co., Ltd., and the two parties will integrate the company's business capabilities such as computing power resources, cloud business platforms, and high-availability IT services in overseas regions, as well as the comprehensive service advantages of China Mobile International Co., Ltd.'s global DICT technology, resources, and operations to build an efficient cloud service system to jointly build an efficient cloud service system involving various cloud resources, computing power resources, AI services, and IoT services.

Maintain a “buy” rating. We believe that the company grasps AI development needs, actively expands new businesses, and the prospects for performance growth are optimistic. Based on the company's excellent performance in the semi-annual report, we raised the company's profit forecast. We expect the revenue for 2024-2026 to be 8.026/9.854/11.414 billion, and net profit to mother 0.805/1.068/1.306 billion, maintaining the “buy” rating.

Risk warning: Risk of AI technology falling short of expectations; risk of rising raw material prices and labor costs; risk of increased industry competition; macroeconomic risk.