Key points of investment

Incident: On August 26, 2024, the company released its 2024 semi-annual performance report. The first half of the year achieved operating income of 1.531 billion yuan, yoy +68%; realized net profit of 0.148 billion yuan, yoy +200%; realized deducted non-net profit of 0.112 billion yuan, an increase of 0.106 billion yuan over the previous year, yoy +1873%.

Revenue reached a record high in a single quarter, and gross margin recovered steadily. In the first half of 2024, the company achieved revenue of 1.531 billion yuan, yoy +68%, an increase of significant, mainly due to increased demand in the smart home/wearable market, increase in smartwatch share and mass production and shipment of the new 6nm BES2800 series; achieved net profit of 0.148 billion yuan, yoy +200%, mainly due to revenue growth, month-on-month increase in Q2 gross margin and reduction in expense ratio; achieved deduction of 0.112 billion yuan in non-net profit, an increase of 0.106 billion yuan over the previous year billion yuan, yoy +1873%

Among them, the company achieved revenue of 0.878 billion yuan in the second quarter, yoy +67%, qoq +34%, a record high; achieved net profit to mother of 0.12 billion yuan, yoy +140%, qoq +335%; and achieved gross profit margin of 33.40% and qoq +0.46pct.

The results of the AIOT platform-based layout are beginning to be seen, and the BES2800 is mass-produced and shipped. The company has made positive progress in product and market expansion. We believe the following three points are worth paying attention to:

1) Customer demand in the downstream smart wearable and smart home sector continues to grow, driving the company's revenue growth; 2) The company's competitiveness in the smartwatch/bracelet market has been further enhanced. On the basis of the flagship chip BES2700BP, the company has successively launched new products such as BES2700IBP and BES2700iMP, achieving full coverage of smartwatches, sports watches and bracelets. Shipments have grown rapidly, and market share has increased. In the first half of 2024, the company's smartwatch/bracelet chips accounted for about 28% of revenue, a significant increase over last year, driving the company's rapid revenue growth;

3) The company's next-generation smart wearable chip BES2800 series products achieved mass production and shipment. Using advanced 6nm FinFET technology, the chip integrates multi-core CPU/GPU, NPU, high-capacity storage, low-power Wi-Fi, and dual-mode Bluetooth in a single chip, which can provide powerful computing power and a high-quality seamless connection experience for wearable devices. According to the company's 2024 semi-annual report, the chip has now been introduced in several customers' headsets, smartwatches, smart glasses and other projects, and is expected to gradually begin growing in the second half of the year.

Continued investment in R&D, product competitiveness has been steadily improved. The company continues to invest in R&D. 24H1 R&D cost is 0.322 billion yuan, yoy +37%, and the R&D cost ratio is 21%. With continuous investment in R&D, the company completed mass production of products such as 2,700 iBP and WIFI6 chips in 2023, and 2800 series products for application scenarios such as TWS headsets and smartwatches have also been mass-produced and shipped, so future revenue growth can be expected. Furthermore, we believe that the company's new BES2800 series deserves special attention. It uses a 6nm process, integrates WiFi and Bluetooth modules, and supports local sensor network algorithm processing. It can provide powerful computing power and a high-quality seamless connection experience for products such as TWS headsets, smart watches, smart glasses, smart hearing aids, etc., and conforms to the development trend of AI in wearable products.

Investment advice: As the results of the company's AIOT platform-based layout gradually become apparent, and the product competitiveness is steadily improving, we expect the company's 24-26 revenue to be 3.24/3.78/4.52 billion yuan, and net profit to mother 0.36/0.48/0.68 billion yuan. Based on the closing price on August 26, 2024, the corresponding 24-26 PE is 52/38/27 times, maintaining a “buy” rating.

Risk warning: New product development progress falls short of expectations, downstream market demand falls short of expectations, market competition intensifies, supply chain risks