1H24 results are in line with market expectations

1H24's revenue was 0.57 billion yuan, or -38.1% year on year; adjusted net loss was 0.037 billion yuan, down 5.0% year on year. The adjusted net loss ratio was 6.5%, an improvement of 53.5ppt year over year. The results are in line with market expectations.

Development trends

Focus on high-quality revenue and strategically adjust the business structure. According to the company's performance report, 1H24 is actively optimizing its business structure and strategically shrinking the OLED panel semiconductor manufacturing and financial services business. 1H24's revenue from manufacturing decreased by 0.17 billion to 0.44 billion yuan year on year, accounting for 76.5% of total revenue, 15.8 ppt year on year. Segmented by industry, automotive equipment/3C high-tech and OLED panel semiconductor manufacturing revenue was 0.09/0.05/0.02 billion yuan, respectively, -61.0%/+16.2%/-78.6% compared with the same period last year. Financial services revenue declined by 64.2% year over year to 0.083 billion yuan. According to the company's public results conference, the panel and financial industry are a circuit for the company's strategic contraction.

Refined management improves gross profit and maintains steady cash flow. 1H24's gross margin was 33.8%, compared to +1.4ppt. The company strictly controlled delivery efficiency and cost control, while the business structure continued to be optimized. 1H24's R&D expenses decreased by 33.7% year on year to 0.15 billion yuan, mainly due to improved R&D efficiency and effective control of R&D expenses. The company is increasing its collection of accounts receivable while strengthening cash flow control. 1H24's overall cash and equivalent was $1.33 billion, which was basically the same as at the end of 2023. Cash outflow from operating activities improved by 76.8% and decreased to $0.025 billion. Furthermore, 1H24's receivables were 0.424 billion yuan, a sharp decrease of 48.8% from 1H23's 0.829 billion yuan, an improvement of 36.9% month-on-month compared with the end of 2023, and steady cash flow.

The implementation of the industrial model is progressing steadily, and the failure of equity incentives is under pressure. In March 2024, the company upgraded the Kizhi Kong Ming industrial model AINNO-75b, focusing on introducing multi-modal large model capabilities to support the output of text, images, video, CAD, etc. 1H24 has established a complete industrial model technology product matrix, including AIGC applications such as ChatVision generative enterprise private vision insight, ChatRobot Pro generative industrial robot scheduling, and ChatCAD generative assisted industrial design. According to the semi-annual report, as of the announcement date, all shares granted under the 2023 Equity Incentive Plan have been cancelled or expired.

These incentive shares are held by the trustee after they expire, and can still be granted in the future according to market conditions and the provisions of the 2023 Equity Incentive Plan.

Profit forecasting and valuation

Considering that the company is in a strategic business structure adjustment period, we lowered the 2024e/2025e revenue forecast by 40.4%/47.8% to 1.22/1.23 billion yuan, and lowered the 2024e/2025e adjusted net profit forecast to mother from -0.83/-0.01 to -0.14/-0.09 billion yuan. We are optimistic about the company's card position advantage in the industrial scenario, maintain the company's performance rating, and consider the profit forecast adjustment and the downward target price reduction of 55% to HK$4.5, corresponding to 1.9x/1.8x 2024e/2025e P/S. There is 31.6% upside compared to the current stock price. The current stock price is trading at 1.4x/1.4x 2024e/2025e P/S.

risks

Increased competition in the industry; continued business losses; loss of important customers.