Revenue growth has exceeded expectations, and changes in revenue structure have put pressure on gross margins. 2024H1, Radio and Television Express achieved operating income of 4.707 billion yuan, YoY +29.45%; net profit to mother of 0.498 billion yuan, YoY +5.20%;, comprehensive gross profit margin of 32.29%, YoY 7.38pct. Looking at a single quarter, 2024Q2 achieved operating income of 2.701 billion yuan, YoY +24.96%, QoQ +34.61%; net profit to mother of 0.251 billion yuan, YoY +5.65%, QoQ +1.61%; comprehensive gross profit margin of 31.54%, YOY-8.27pct, and QoQ-1.75pct. The increase in revenue was mainly due to the increase in the first half of the year due to the merger of CICC Payment, China Digital Smart Exchange, and the increase in the scale of the urban intelligence business. At the same time, due to the increase in the share of low margin payment services and the influence of high margin overseas business by geographical relationships, the company's gross margin was under pressure in the short term, but with the normal development of overseas business, the comprehensive gross margin of the company's financial business is expected to pick up in the second half of the year.

We believe the company's 2024H2 focuses on the following:

1) The overseas financial instruments business continued to expand, and the second half of the year ushered in a peak of delivery: in terms of overseas business, products and services have covered more than 120 countries and regions, providing fintech products and services to more than 1,200 financial institutions. The amount of new overseas contracts signed by the company in the first half of the year exceeded 1 billion yuan, a record high. It is expected that with the further optimization of delivery channels in the second half of the year, the company's high-margin overseas business will experience steady growth throughout the year.

2) The digital construction business of government and enterprises progressed steadily, and the data element business continued to advance: in the first half of the year, the company won bids for a number of smart city construction projects and invested in the “One Cloud” project of the Guangzhou Digital Government of 0.575 billion yuan. Related businesses will bring revenue growth in the second half of the year. Meanwhile, in August 2024, the company's parent company has fully signed a Guangzhou public data operation agreement with the Guangzhou Municipal Government. As the group's comprehensive digital dealer, the company is expected to enjoy the dividends of the high-quality development of the data factor market in Guangdong Province.

3) Seize the opportunities of the integrated vehicle-road cloud market and deepen the “big transportation” layout: Yuntong Intelligence, a holding subsidiary of the company, provides overall digital travel solutions for customers in subways, high-speed rail, urban roads and highways, and has prepared roadside equipment such as Lightning all-in-one machines, edge computing units, smart traffic lights, etc., which is expected to seize the opportunities for integrated vehicle-road cloud construction at the end of the year.

4) Deepen the computing power layout and hold Radio and Television Wuzhou: In August 2024, Radio and Television Express achieved the holding of Radio and Television Wuzhou and included it in the scope of the company's consolidated statements. Radio and Television Wuzhou achieved revenue of 1.298 billion yuan in 2023, which will have a positive impact on the annual results of Radio and Television Express.

Profit forecast: Taking into account the consolidation of radio and television in the second half of the year and the company's business development exceeding expectations, the company's 2024-2026 operating income was raised to 11.941/13.621/15.521 billion yuan, and net profit to mother was raised to 1.131/1.289/1.455 billion yuan, maintaining the “buy” rating.

Risk warning: Data element industry development falls short of expectations, macroeconomic growth falls short of expectations, overseas business expansion falls short of expectations, valuation models and profit forecasts fall short of expectations