1H24 Results Exceed Our Expectations

The company announced 1H24 results: revenue of 1.531 billion yuan, up 68.3% year on year; net profit to mother 0.148 billion yuan, up 200% year on year. Among them, 2Q24's revenue for the single quarter was 0.878 billion yuan, up 66.8% year on year, up 34.5% month on month, and net profit for the single quarter was 0.12 billion yuan, up 140% year on year and 335% month on month. The performance exceeded our expectations. The increase in performance was mainly due to increased industry demand and the company's product upgrades.

Development trends

Downstream demand in the wearables market grew, and 1H24's performance increased. At the industry level, we see that the wearable device market continues to grow. Domestic products such as smartwatches, smart bracelets, and Bluetooth headsets are relatively new terminal applications, which are different from traditional products such as mobile phones, TVs, and speakers, showing the continued growth in demand. The product structure was upgraded, and the company announced that 1H24 smartwatch/bracelet chips accounted for about 28% of revenue, a significant increase over the previous year. According to the company's announcement, on the basis of the flagship chip BES2700BP, the company has successively launched new products such as BES2700IBP and BES2700iMP, expanding the smartwatch co-processor and smart bracelet markets, and opening up a channel for rapid increase in shipments. We are optimistic that the company will make breakthroughs in mainstream overseas smartwatch brands in the future with outstanding competitiveness such as low power consumption, high integration, and rich product lines.

High-end product upgrades reinforce the leading position and are expected to benefit from category expansion in the long term. 1H24 invested 0.322 billion yuan in R&D, an increase of 36.76% over the previous year, and the proportion of R&D personnel reached 86%, laying the foundation for the company to continue to launch new products. According to the company's announcement, the BES2800 next-generation smart wearable chip uses a 6nm FinFET process and integrates multi-core CPU/GPU and NPU in a single chip. It has now been introduced into several customers' headsets, smartwatches, smart glasses and other projects, and is expected to gradually increase in the second half of the year. We believe that as a leading SoC company, the company's continued high investment in R&D has not only deepened the technical barriers of superior products, but is also expected to break through more product categories. We are optimistic about the company's overall ASP improvement and long-term development potential in glasses-related projects.

Profit forecasting and valuation

As demand exceeded expectations and mass production of new products accelerated, we raised our 24/25 revenue by 16.6% and 30.7% to 3.24 billion yuan and 4.32 billion yuan, and our 24/25 net profit by 35.3% and 44.3% to 0.43 billion yuan and 698 million yuan. We maintained our outperforming industry rating and raised our target price by 37.9% to 200 yuan, corresponding to 56/34 times P/E in 24/25. The current stock price corresponds to 42/26 times P/E in 24/25, and there is room for 32.5% increase.

risks

Demand falls short of expectations, competition intensifies, new product verification falls short of expectations, trade frictions.