Incident: On August 29, 2024, MeiG Intelligence released its semi-annual report. Revenue for the first half of the year was 1.306 billion yuan, up 27.63% year on year; net profit attributable to parent company owners in the first half of the year was 33.4823 million yuan, down 31.18% year on year; basic earnings per share were 0.13 yuan, down 31.58% year on year.

The company's second-quarter results improved markedly from month to month, and the level of gross margin improved. The company's semi-annual revenue reached a record high. Among them, in 2024Q2, the company achieved revenue of 0.731 billion yuan in a single quarter, +26.08% year over month, and +27.27% month on month, and 2024Q2 achieved net profit of 0.027 billion yuan to mother in a single quarter, -11.48% year over year and +317.35% month on month. The overall gross margin of 2024H1's business was 16.59%, down 3.82 percentage points from the same period last year (20.41%). It was mainly affected by the structure of shipped products. Some products with lower gross profit levels were shipped centrally during the reporting period, reducing the overall gross margin level in stages. However, the gross profit margin in 2024Q2 was 17.30%, up 1.61 percentage points from the previous month in 2024Q1, and the gross margin situation showed a trend of improving quarter by quarter.

Overseas layout has achieved remarkable results, and there is strong demand for customized intelligent products. The company continued to increase its business layout and product development in overseas markets. 2024 H1 achieved revenue of 0.44 billion yuan overseas, +38.58% year over year. Overseas revenue accounted for 31.06% in the same period last year, rising to 33.73% during the reporting period. At the same time, domestic revenue also continued to maintain a good growth trend on the basis of returning to growth in 2024Q1. 2024H1 achieved domestic revenue of 0.866 billion yuan, +22.69% over the same period last year. The public IoT industry has strong demand for customized and intelligent products from overseas markets, while domestic customer demand has returned to a growth trajectory, and the IoT industry has maintained a high growth rate. In the FWA field, the company collaborates closely with chip manufacturers to continuously implement key 5G projects in North America, Europe, Japan and other regions, and the development trend is good.

5G+AI accelerates the digital transformation process, and the company is expected to be the first to benefit as an intelligent module leader: the new network technology represented by 5G opens a new era of the Internet of Everything, revolutionizes device access and information transmission capabilities, and promotes rapid growth in edge traffic, especially industry traffic. The demand for massive data storage, processing, calculation, and analysis has increased the investment needs of enterprises in new infrastructure such as data centers, cloud computing, and artificial intelligence. According to Grand View Research, the global 5G IoT market will grow at a CAGR of 50.2% in 2023-2030 and reach $89.42 billion by 2023. Over the years, the company has been deeply involved in the direction of intelligent modules and computing power modules, and has established comprehensive technical capabilities with unique advantages in 4G/5G wireless communication, Android systems, high-performance low-power computing, edge-side AI, and terminal-side AI; it has accumulated a large number of intelligent module R&D efforts in the fields of Android system Google GMS long-term certification and maintenance, and has established a pioneering advantage in large-scale applications of intelligent modules in 5G smart cockpits, ADAS/DMS assisted driving, new retail, and 4G/5G PDA.

Investment advice: We believe that as a leading IoT smart module company, the company can rely on its intelligent product advantages to benefit first under the wave of artificial intelligence development. We expect the company's revenue in 2024-2026 to reach 2.8 billion yuan, 3.483 billion yuan, and 4.318 billion yuan, respectively, and net profit to mother is expected to reach 0.158 billion yuan, 0.193 billion yuan, and 0.247 billion yuan, respectively, corresponding to PE multiples of 37x/31x/24x. Maintain a “Recommended” rating.

Risk warning: The boom in the IoT industry falls short of expectations; industry competition intensifies.