Key points of investment

Key points of the announcement: The company released its 2024 semi-annual report, and the performance was in line with expectations. 2024H1 achieved revenue of 2.027 billion yuan, +19.43% year-on-year, net profit to mother of 0.333 billion yuan, net profit of non-return to mother of 0.387 billion yuan. Among them, 24Q2 achieved revenue of 1.138 billion yuan, +18.72%/+27.92% month-on-month, net profit to mother of 0.142 billion yuan, narrowing month-on-month losses, net profit of non-return to mother of -0.167 billion yuan, and narrowing month-on-month losses.

New businesses and new customers continue to break through, and a number of automotive electronics products are about to be released. By business, in 2024, H1 electronics business revenue was 1.68 billion yuan, +32.80% year over year, R&D service and solution business revenue was 0.341 billion yuan, -19.12% year over year, and overall business revenue for advanced intelligent driving solutions was 0.008 billion yuan, +65.40% year over year. 1) New product, 2024H1 has basically completed the full-coverage layout of vehicle electronic control products, formed a product model combining “distributed electronic control unit - domain control product - L4 integrated platform” in the short, medium and long term, and achieved mass production implementation. 2) Self-developed software. The main software series products INTEWORK, ModelBase, and OrienLink have all expanded and applied the customer base, covering customers such as Hongqi, BYD, NIO, Changan, Sinotruk, Zero Run, Baidu Apollo, Extreme Krypton, and Guangzhou Automobile. 3) Internationalization. The company's factory in Malaysia has been completed and put into operation and continues to increase shipment volume, continuing to target many international OEMs/Tier 1 locations such as Stellantis, Scania, Navistar, Schaeffler, BorgWarner, Magna, and HI-LEX.

R&D expenses have narrowed month-on-month, and the inflection point in performance is approaching. We believe that the company is currently still in a period of energy release, and the development of various projects urgently needs high R&D investment support. 2024Q2's R&D expenditure ratio was 21.7%, -1.3 pct/-11.0 pct. R&D expenses narrowed month-on-month, and the company's early R&D investment gradually contributed revenue, which is expected to drive the company's profit recovery. The cost rate during the 24Q2 period was 36.2%, +4.7pct/-13.5pct. Among them, the sales cost rate/management expense ratio benefited from the month-on-month decline in scale effects, and the R&D expense ratio decreased significantly from month to month.

Profit forecast and investment rating: We maintained the company's 2024-2026 revenue forecast of 5.5/7.15/8.04 billion yuan, +18%/+30%/+13% year over year; basically maintained the 2024-2026 net profit forecast of 0.004/0.201/0.363 billion yuan, and the net profit to mother for 2025-2026 was +5101%/+81% year on year, respectively, and the corresponding PE for 2024-2026 was 1855/36/20 times, respectively, given The number of new products in the company's electronics business is about to be released, and we maintain a “buy” rating.

Risk warning: The development of the smart electric vehicle industry falls short of expectations, laws and regulations restrict the development of autonomous driving, and downstream car companies' price wars exceed expectations.