Incident: Recently, the company released its 2024 semi-annual report. In the first half of 2024, the company achieved revenue of 1.531 billion yuan, +68.26% year over year; net profit to mother 0.148 billion yuan, +199.76% year over year; net profit after deducting non-return to mother 0.112 billion yuan, +1872.87% year over year. The second quarter of 2024 achieved revenue of 0.878 billion yuan in a single quarter, +66.80% YoY, +34.45%; net profit to mother 0.12 billion yuan, +140.00% YoY, +334.87% month-on-month; net profit without return to mother 0.103 billion yuan, +237.50% YoY and +1028.36% month-on-month.

Key points of investment:

24H1's performance achieved rapid growth, and 24Q2 saw a steady recovery in gross margin. In the first half of 2024, due to strong demand in the smart wearables and smart home sector, the company gradually increased its market share in the smartwatch field, and mass production and shipment of the company's next-generation smart wearable chip, the BES2800, promoted rapid revenue growth. The company's 24Q2 gross margin was 33.39%, down 1.30% year on year and up 0.46% month on month; the company's operating income increased sharply year on year, leading to a scale effect. The cost ratio decreased during the period, resulting in a net interest rate of 13.67% for 24Q2, up 4.17% year on year and 9.44% month on month. Continued high level of R&D investment is the key for the company to maintain its core competitiveness. 24H1 invested 0.322 billion yuan in R&D, an increase of 36.76% over the previous year, and the total R&D investment accounted for 21.01% of revenue.

Demand in the wearable device market is strong, and the market share of the company's smartwatch/bracelet chips is rapidly increasing. According to IDC data, global wearable shipments increased 8.8% year on year in 24Q1; domestic wearable device market shipments increased 36.2% year on year in 24Q1; domestic smartwatch market shipments increased 54.1% year on year in 24Q1. According to Canalys data, 24Q2 global TWS headset market shipments increased 12.6% year on year; according to IDC data, 24H1 domestic Bluetooth headset market shipments increased 20.8% year on year. The 24H1 wearable device market is in strong demand, and the company continues to maintain its dominant position in the TWS headphone control chip market, further improving its competitiveness in the smartwatch/bracelet field; on the basis of the flagship chip BES2700BP, the company successively launched new products such as BES2700IBP and BES2700IMP, which achieved full coverage of smartwatches, sports watches and bracelets. Shipments grew rapidly, and the market share increased; 24H1's smartwatch/bracelet chips accounted for a significant increase of about 28% in revenue over the previous year, in order to drive It is an important driving force for the company's rapid revenue growth, and the share of 24H2 revenue is expected to continue to increase.

The next generation of 6nm chips is expected to be gradually released, and ultra-low power chips will be mass-produced and shipped. With the rapid development of generative AI, the demand for edge AI computing in low-power wearable devices has also increased markedly. 24H1's next-generation smart wearable chip, BES2800, has been mass-produced and shipped. The BES2800 uses advanced 6nm FinFET technology, and the single chip integrates multi-core CPU, GPU, NPU, high-capacity storage, low-power Wi-Fi, and dual-mode Bluetooth, which can provide powerful computing power and a high-quality seamless connection experience for wearables; the BES2800 is now available in multiple customers' headsets, Introduced in smartwatches, smart glasses, etc., it is expected that 24H2 will gradually expand. Based on years of research and development in the field of low-power wearables, 24H1 launched a new ultra-low power wireless wearable chip, the BES2700iMP, which has been mass-produced and shipped in watch/bracelet products for brand customers. The BES2700iMP greatly reduces the dynamic and static power consumption of the chip, greatly increases the standby time of terminals, and can be widely used in extremely low power MCU scenarios such as smart watches/bracelets, rings, and tag losers.

Profit forecasting and investment advice. The company is a leading smart audio and video SoC chip enterprise in China. Due to strong demand in the wearable device market, the company's smartwatch/bracelet chip market share is rapidly increasing. The next-generation 6nm smart wearable chip BES2800 has achieved mass production and shipment, and is expected to gradually expand. We have raised the company's 24-26 revenue and net profit forecast. The company's 24-26 revenue is expected to be 3.338/4.034/4.781 billion yuan (original value was 2.77/3.417/4.129 billion yuan), 24 Net profit for -26 was 0.37/0.531/0.713 billion yuan (original value was 0.276/0.396/0.53 billion yuan), the corresponding EPS was 3.08/4.42/5.94 yuan, and the corresponding PE was 47.91/33.36/24.85 times, maintaining the “buy” rating.

Risk warning: Demand recovery for wearable devices falls short of expectations; industry competition intensifies; new product market expansion falls short of expectations; progress in new product development falls short of expectations.