Incident: The company released its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 0.22 billion yuan (+6.75%), realized net profit due to mother of 0.658 million yuan, and realized net profit after deducting non-return to mother of 0.4148 million yuan, all turning a loss into a profit over the previous year.

Performance continues to be repaired, and the cost control effect is remarkable. 24H1's downstream industries promote digital and intelligent transformation and upgrading, and customer demand has increased, driving the steady restoration of the company's business. The company is focusing on high-quality development, strengthening cost control, and improving profitability. Both net profit to mother and net profit after deducting non-return to mother turned losses into profits year-on-year. 24H1's sales expense ratio, management expense ratio, and R&D expense ratio were 27.6%, 10.7%, and 26.2%, down 5.3, 1.6, and 4.3 pct from 23H1, respectively, and the cost control effect was remarkable.

Promote the implementation of scenario-based solutions and channel strategies. The company has promoted the construction of a channel strategy system. Q2 has started business one after another, and has already seen initial results. It is expected that the market penetration rate and market share will gradually increase. The company continues to promote product service upgrades, improve intelligent scenario operation and maintenance solutions, and form 1+N+X scenario-based intelligent operation and maintenance solutions, namely: 1 professional technical industrial Internet platform, N intelligent sensing hardware, and intelligent application of X types of scenarios. At the same time, with high-quality service capabilities, the company is steadily promoting a subscription-based service model, which is expected to bring about long-term steady growth as the customer base continues to expand.

AI-enabled products. The company has created a PHMGPT vertical model based on over 0.025 million equipment failure case data and a large number of diagnostic labels accumulated by diagnostic experts over the years, which can improve the diagnostic efficiency of diagnostic engineers.

Among them, the company has successfully developed more than 20 types of AI algorithms in the belt transmission airport to detect key belt conveyor faults. Currently, it is also actively piloting products such as inspection robots at customer sites. Through continuous iteration of the algorithm, smart inspection with few people can be realized. The company will continue to invest heavily in consolidating the foundation of AI capabilities, which is expected to become an important part of the company's subscription service business model.

According to the company's 24-26 annual report, we forecast the company's net profit for 24-26 to be 0.085/0.119/0.157 billion yuan, respectively (the original 24-25 forecast was 0.181/0.242 billion yuan, lowering operating income and gross margin forecasts, and increasing expense ratio forecasts). Referring to the comparable company, the price-earnings ratio was 27 times for 24 years, and the corresponding target price was 28.35 yuan, maintaining the purchase rating.

Risk warning

The transformation and upgrading of the manufacturing industry fell short of expectations, the industry penetration rate fell short of expectations, the risk of gross margin fluctuations due to increased industry competition, the risk of high cost ratios during the period, and the risk of accounts receivable recovery