Hongsoft 24H1 revenue yoy +11.97%, net profit to mother yoy +22.82%, company 24H1 revenue 0.381 billion, yoy +11.97%; net profit to mother 61.4589 million, yoy +22.82%; net profit after deducting non-net profit of 53.7943 million, yoy +21.70%; net operating cash flow - 64.8463 million, yoy -130.82%. In view of the rapid growth of the intelligent driving business, we raised the 24-26 EPS to 0.34/0.49/0.66 yuan (previous value 0.32/0.42/0.57 yuan). Since the intelligent driving business has not been boosted in 24 years, using the 25-year valuation, it is comparable to the company's 25-year average value of PE 74 times (Wind). Since the company is in a leading position in the fields of intelligent driving, commercial marketing, etc., the company was given a 25-year target PE 80 times, corresponding to a target price of 38.92 yuan (previous value of 33.6 yuan), maintaining the purchase rating.

24H1: Smart terminal business revenue grew steadily, and smart driving business revenue continued to grow at a high rate. The company's 24Q2 revenue/net profit to mother was 0.197/0.027 billion, YOY +10.20%/24.90%, respectively. 1) Smart terminals: 24H1 revenue yoy +6.43%, of which 24Q1/Q2 revenue yoy +8.91%/4.2%, 24Q2 increased 6.07% month-on-month; 2) Intelligent driving: 24H1 revenue yoy +93.19%, of which 24Q1/Q2 revenue yoy +92.11%/94.17%. 24H1's comprehensive gross profit margin was 91.06%, yoy-0.5pct. First, the revenue share of intelligent driving (87.28%) with a relatively low gross margin increased by 4.78 pct; second, the gross margin of the smart terminal business yoy-0.97pct. This year, superdomain fusion algorithms were mainly used in flagship models, and spread to mid-range and high-end models this year. The period cost rate/sales expense rate/management expense rate/R&D expense ratio changed by 1.8/0.6/ (-1.2) /2.8pct year-on-year, respectively.

Smart terminals: The penetration rate of superdomain fusion has been further increased. The video application prototype has been approved by customers. 24H1 superdomain fusion has penetrated from flagship models to more high-end models, and has also begun to be promoted to mid-range and low-end models. The company launched a new super-domain integrated instant shooting, night scene video adjustment, and 25M high-resolution fusion solution, and extended the technology to video applications. The prototype of the solution has been recognized by several important customers and supported by platform manufacturers, which is expected to become an important driving force for growth next year.

Intelligent driving: The share of cockpit at home and abroad continues to increase. The 24H2 is a fixed-point 24H2 with an integrated cabin and is worth expecting the 24H1 in-cabin health detection algorithm product to replicate 1 to N and obtain fixed targets for multiple mass-produced models. The market share of the company's cockpit algorithms continues to increase. Outboard 3D AVM and Sentinel monitoring algorithm products continue to be shipped and received new targets; the integrated cabin parking solution has reached the mass production level, and the 24H2 is expected to achieve fixed mass production targets; the Tahoe with integrated in-cabin front software and hardware continues to receive global fixed-point projects for various models; Westlake, an integrated software and hardware solution for the exterior cabin, accelerates the commercialization process and gradually carries out marketing work.

Smart shopping has fully entered the mainstream e-commerce platform market, and since May, Hongsoft PSAI has successively entered mainstream e-commerce platforms such as Taobao Qianniu Merchant Workbench, Alibaba 1688 Platform, Doudian Micro App, and Doudian Service Market. It entered TikTok Shop in July to further advance into the international market; the company expects PSAI to cooperate with more other e-commerce platforms in the future.

Risk warning: Smart terminal sales and smart car mass production fall short of expectations; AIGC and others fall short of expectations.